Biden promised 55,000 borrowers student-debt relief by January. They didn’t get it — and are heading to court. | MarketWatch

Originally Appeared in MarketWatch
By Jillian Berman

March 19, 2024

Denied loans for cars and homes. Postponing dental care and house repairs. Facing aggressive collection activity. These are just some of the consequences tens of thousands of student-loan borrowers say they’ve faced because the government still hasn’t wiped away debt it promised to discharge weeks ago. 

Now they’re taking legal action by asking a court to require the Education Department to promptly discharge the debt.  

The motion filed Tuesday in San Francisco’s federal court is the latest development in a years-long class-action lawsuit on behalf of 290,000 borrowers who were scammed by their schools. Under a deal reached in 2022 to settle the case, known as Sweet v. Cardona, 195,000 borrowers were supposed to have their debt automatically wiped out by Jan. 28. 

But according to the motion filed Tuesday, the Biden administration hasn’t held up its end of the deal for at least 55,000 borrowers who still haven’t received loan discharges. That figure doesn’t include borrowers who may have had their debt canceled but are still seeing it on their credit report, the motion alleges.  

For months, including up until the day the motion was filed, the government and attorneys for the borrowers went back and forth in an attempt to resolve the issue, according to court documents. The government said that providing a deadline for when all of the 195,000 borrowers would receive relief would be “aspirational,” the borrowers’ attorneys wrote in the motion.  

“We feel like we need to move with court intervention because we aren’t getting any concrete timeline or plan,” said Eileen Connor, the director of the Project on Predatory Student Lending, a legal-aid organization that is representing the borrowers. “One of the key things that we’re hoping for is that the court can extract more answers from the [Education Department] than we have been able to do.”  

“If the court sets another deadline and they don’t make that, then you’re looking at contempt,” she added.  

Biden administration has touted debt-relief efforts 

The legal filing comes just weeks after President Joe Biden touted his efforts on student-debt relief during the State of the Union earlier this month. So far, his administration has approved $138 billion in debt discharges for roughly 3.9 million borrowers, but not all of those borrowers have seen their balances wiped clean.  

Included in that $138 billion approved by the Biden administration is $22.5 billion in debt relief for 1.3 million borrowers who were scammed by their schools. That debt cancellation is supposed to come through various channels, including court settlements.  

But the motion alleges that even though borrowers in the Sweet settlement have had their debt relief approved, tens of thousands haven’t seen the debt wiped away or removed from their credit report. 

Meanwhile, the Education Department and its contractors are facing challenges on other fronts. Servicers have been accused of throwing up obstacles to loan forgiveness for public servants. In addition, the Office of Federal Student Aid, which oversees the student-loan system and the financial-aid funds sent out to students and colleges, is struggling to implement an overhaul of the federal financial-aid system.  

Of the agency’s approach to the borrowers entitled to relief under the Sweet settlement, Connor said: “It doesn’t seem that it’s their feeling that this is incredibly urgent. It’s a court-ordered settlement; you can’t just ignore it.”  

The named plaintiff still had a $65,000 debt outstanding 

The settlement stems from a case filed against the Education Department in 2019, when Betsy DeVos served as its secretary. The suit alleged that the department’s approach to borrower-defense claims was illegal.  

Since the 1990s, borrowers who have been scammed by their schools have had the right to have their debt discharged through a process known as borrower defense. But the provision was rarely used until 2015, when the for-profit college chain Corinthian collapsed amid allegations the school had lured students into taking on debt through misleading claims about job placement and graduation rates.  

In response to former for-profit college students clamoring for relief under the law, the Obama administration streamlined the borrower-defense process. But the DeVos-led department allegedly stalled on deciding applications, which prompted the Sweet litigation.  

The Biden administration agreed to settle the suit in 2022. As part of the agreement, borrowers who submitted a borrower-defense claim before June 22, 2022, and attended one of 150 schools on a list created by the department were supposed to have their debt discharged on or before Jan. 28, 2024. The motion filed Tuesday alleges that the department isn’t abiding by that term of the agreement, because not all of the borrowers included in the automatic-discharge group have had their debt wiped out.  

In the meantime, borrowers have reported being denied mortgages or approved for loans at higher interest rates because the debt they’ve been promised will be canceled is still on their credit report, according to a letter sent to the Justice Department last month by the borrowers’ attorneys.  

One borrower, who has waited 14 years for relief, said the loan’s appearance on their credit report is “destroying my life,” according to the letter. The borrower’s grandmother, who is 96 years old and WSJ Barron's MarketWatch IBD

cosigned the loan, “deserves to have this money given back to her while she is still alive,” the borrower said. 

When payments resumed on federal student loans last fall after a pause of more than three years, at least 268 borrowers who had been promised discharges made a payment on their loan, according to the borrowers’ attorneys. Borrowers have also reported harassing debt-collection activity, including calls demanding payment on debt that should be discharged and accusations that they are delinquent on their loans.  

Even the named plaintiff in the case, Theresa Sweet, still had a $65,000 debt outstanding in her student-loan portal that is supposed to be discharged, according to the February letter.  

The Department of Education didn’t immediately respond to a request for comment after business hours. 

The government has said previously that part of the reason for the delay in processing discharges is that some borrowers’ loans have changed hands over time, leading to complex loan histories that can make it difficult to determine how much debt to cancel and how large of a refund borrowers are owed.  

“The Department acknowledges the importance of providing full settlement relief to borrowers as promptly as possible,” government lawyers wrote in a letter to the borrowers’ attorneys. “The Department wants to assure Plaintiffs that these issues have been brought to the attention of senior agency officials, and those officials are regularly briefed on the status of the Sweet settlement implementation.” 

For the borrowers’ attorneys, that isn’t enough — particularly given that borrowers aren’t given much latitude when they skip loan payments, the attorneys wrote in the filing.  

“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,” they wrote in the motion. “The Department of Education, which permits such draconian measures for its constituents, should not be permitted to escape accountability for its own missed deadlines.”