$6 Billion Student Loan Forgiveness Settlement Delayed As Group Seeks Court Intervention | Forbes

Originally Appeared in Forbes
By Adam S. Minsky

March 20, 2024

A landmark settlement agreement that would provide $6 billion in student loan forgiveness and other relief to nearly 200,000 borrowers has not been fully implemented by a court-ordered deadline. And a legal group representing impacted borrowers is now asking a federal court to intervene.

“This is an extraordinary failure by the Biden-Harris administration to comply with a settlement that impacts hundreds of thousands of people,” said Eileen Connor, President and Director of the Project on Predatory Student Lending, on Tuesday. “Compliance is not optional, there are no excuses, and the administration needs to go to every length to ensure relief is delivered as promised and in accordance with this binding, court-ordered settlement agreement.”

Here’s what borrowers need to know.

$6 Billion In Student Loan Forgiveness Under Key Settlement Agreement

The Sweet v. Cardona settlement was supposed to provide $6 billion in student loan forgiveness to borrowers who were defrauded by their schools. Borrowers had sued the Education Department during the Trump administration after thousands of applications for Borrower Defense to Repayment relief had been stalled for years or denied. The Borrower Defense program allows those who were misled or defrauded by their school to request a discharge of their federal student loans.

Under the Sweet settlement — which was reached after years of litigation — at least 196,000 borrowers who attended one of several dozen schools approved by the court were supposed to receive student loan forgiveness totalling $6 billion, as well as refunds of prior payments and corrected credit reports. The settlement was approved in November 2022, and the Education Department was to complete implementation of the terms by the end of January 2024.

Student Loan Forgiveness Delayed For Many Borrowers, So Group Asks Court To Intervene

But despite the implementation deadline having now passed, tens of thousands of borrowers are still waiting on student loan forgiveness, according to the Project on Predatory Student Lending, the legal organization representing borrowers in the Sweet case.

“The Department of Education has had a year to deliver settlement relief to 196,000 borrowers who are entitled to discharges, refunds, and credit repair under the settlement on the basis of the school that they attended,” said the group in its statement. “Now, more than 6 weeks after the deadline of January 28, 2024, tens of thousands of borrowers still have not received their settlement relief. Many of these borrowers filed their borrower defense applications as early as 2015 and have been waiting nearly ten years for the relief they are owed.”

The Project engaged in a series of communications with the Education Department to try to rectify the issue. The department admitted that a significant portion of borrowers who qualify for student loan forgiveness under Sweet have not yet received it. But officials argued that this is because of an array of issues including complicated consolidation and repayment histories, as well as loan servicing delays.

On Tuesday, the Project filed a motion in federal court to enforce the settlement — essentially asking a judge to compel the Education Department to grant the remaining relief under the settlement agreement, including student loan forgiveness, provide updates on progress, and to pay for the attorneys’ legal fees and costs.

“Today, student borrowers in the class action lawsuit Sweet v. Cardona filed a motion to enforce the $6 billion borrower defense settlement after the Department of Education violated the agreement by failing to meet the settlement deadline of January 28, 2024,” said the group. “Nearly 196,000 student borrowers were told by the Biden administration that their loans would be wiped away, their credit repaired, and money paid to the government on fraudulent loans returned. But as the deadline passed, about a third of these borrowers still had not had their loans cancelled. Missing the court-ordered deadline has caused hardship above and beyond what class members have already experienced.”

“Class Members are suffering serious, ongoing harm as a result of the Department’s failure to meet the required deadline,” wrote attorneys representing the borrowers in the motion. “Some were counting on their refunds to pay for life necessities, such as dental work or home repairs. Some are unable to purchase a home or car because loans that should have been discharged already are still appearing on their credit reports. Some are trying to pay down other, high-interest loans that grow every day. Many have experienced unlawful attempts by their federal student loan servicers to collect on loans that are covered by the Agreement, causing Class Members stress and confusion (made worse by the Department’s lack of oversight as its servicers disseminate misinformation about settlement relief).”

The attorneys noted, “When student loan borrowers miss deadlines, the consequences are immediate and drastic. They are harassed by debt collectors, have their credit damaged, and can have their income seized. The Department of Education, which permits such draconian measures for its constituents, should not be permitted to escape accountability for its own missed deadlines.”

Latest Issue With Student Loan Forgiveness Through Borrower Defense

The delayed student loan forgiveness under the Sweet v. Cardona settlement is just the latest issue impacting the Borrower Defense to Repayment program. The program has been subjected to volatile political and legal battles for nearly a decade.

The Obama administration first enacted detailed regulations and an application process for the Borrower Defense program in 2016. The Trump administration then made several attempts to overturn those regulations and impose stricter rules for more limited relief. Those regulations were ultimately upheld, but a legal battle over elements of those rules is ongoing.

Meanwhile, the Biden administration rewrote the Borrower Defense rules again and released new regulations last July. This latest regulatory regime overturns much of the Trump-era limitations and expands the categories of school misconduct that can qualify a borrower for student loan forgiveness. But these rules were challenged, as well, and a federal appeals court has blocked implementation of the new regulations as a legal dispute continues. As a result, the Education Department has paused processing Borrower Defense applications, leading to lengthy delays — the very reason that borrowers ultimately sued the department in the Sweet case.