$6 billion in student loans canceled for about 200K defrauded debtors

Around 200,000 former students who attended schools that they said defrauded them will have $6 billion in federal loans canceled under a sweeping settlement announced Wednesday, the latest move by the Biden administration to address the student loan crisis by eliminating some debts.

Those who applied for relief — some as long as seven years ago — will have their loans wiped out if they attended one of more than 150 schools named in the class-action settlement, nearly all of which are forprofit colleges and vocational programs. The deal reverses 128,000 denial notices that were sent to relief applicants during the Trump administration.

Many of the schools included in the settlement are out of business. They include large chains like the Art Institutes and other campuses run by the Dream Center, whose operations abruptly collapsed in 2019, and those owned by Career Education Corp. The latter, at its peak, enrolled tens of thousands of students at more than 100 locations. The deal also includes a few colleges that are still operating, including the University of Phoenix, Grand Canyon University and DeVry University.

Education Secretary Miguel Cardona called the deal “fair and equitable for all parties.”

The Education Department granted relief to applicants from the schools included in the deal “based on strong indicia regarding substantial misconduct by listed schools, whether credibly alleged or in some instances proven,” according to the settlement papers filed with the U.S. District Court for the Northern District of California. Those borrowers’ loans will be fully eliminated, and any payments they made will be refunded.

The deal, which must be approved by a federal judge, was greeted with cheers and relief by borrowers.

The agreement is a major step toward resolving a problem that had stretched across three presidential administrations: a glut of relief claims from students who attended for-profit schools that saddled them with large bills for a subpar education.

The deal’s relief is mainly limited to those who submitted a borrower defense application on or before Wednesday. The Education Department must now decide if it will approve future claims from students who attended the schools that it has said acted illicitly.