Judge Advances $6B Debt Forgiveness for 200K Borrowers

Borrowers from a handful of schools, however, will have to wait longer to see if their debt will be erased.
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  • A federal judge’s latest ruling will allow forgiveness for borrowers who claim they were “defrauded” by their college.
  • The case stems from the Department of Education’s lack of processing borrower defense claims under President Trump.
  • The court’s decision excludes borrowers who attended certain schools.

A landmark settlement affecting 200,000 borrowers will finally come to fruition, at least for most borrowers.

Judge William Alsup ruled Friday that the Department of Education (ED) may begin to erase the federal student loan debts of borrowers who filed borrower defense claims against a list of 150 schools within a certain time frame. However, because of a pending appeal, borrowers from several schools may not yet see their debts forgiven.

That’s because three companies owning five institutions appealed the settlement as “intervenors.”

Alsup denied the intervenors’ motion for a stay pending appeal.

He did, however, grant them a temporary stay lasting until March 3.

Until then, ED may only discharge debts for students that attended any of the other schools listed.

The intervenors have until March 3 to file another motion for a stay, which would withhold loan discharge for their schools until the appeals process is complete. Or, they can choose not to file for another stay and allow ED to send out discharges for all schools.

This temporary stay impacts borrowers who filed claims against:

  • American National University
  • Lincoln College of Technology
  • Lincoln Technical Institute
  • Everglades University
  • Keiser University

Attorneys Argued Institutions Painted As 'Predatory'

The ruling allowing debt forgiveness to move forward stems from a Feb. 15 hearing in which attorneys representing the three intervenors made a last plea for a stay.

During the hearing, Judge Alsup repeatedly pressed lawyers representing the intervening schools about how the settlement would harm them.

The answer was consistent: Being included on the list painted these schools as “predatory,” which negatively impacts their ability to recruit students and form partnerships.

“That’s a death knell for schools,” Jesse Panuccio, one of the attorneys representing intervenors, said during the hearing.

An attorney representing borrowers stressed that further delaying the settlement would have negative consequences for borrowers needing debt relief.

Alsup’s Friday decision states he does not feel the intervenors proved another stay would prevent reputational harm. In fact, he suggested that any harm that has come to the intervenors “is already irreparable,” so it’s unclear why it would be necessary to continue to drag out the case.

A Four-Year Lawsuit Nears Its End

The lawsuit has already dragged on for four years. A group of federal student loan borrowers first filed the lawsuit over the department’s inaction and denial of borrower defense claims, largely against for-profit colleges. These issues started under former ED Secretary Betsy DeVos.

Under current Secretary Miguel Cardona, the department settled in June.

ED agreed to cancel debt for more than 200,000 borrowers who claimed they were defrauded by colleges and have pending borrower defense claims as of June 22. The department would decide another 64,000 pending claims "using standards favorable to the borrowers," according to the settlement.

The settlement would see an estimated $6 billion in loans discharged.

Federal Judge William Alsup delayed the implementation of the settlement in late January so that he could hold Feb. 15’s appeals hearing.