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Biden administration proposes canceling student debt of 200,000 borrowers who say they were scammed

In a proposed settlement agreement, the Education Department said it would fully discharge the debt of borrowers who attended 50 specific colleges.
Image: Student debt
The Too Much Talent Band and local activists protest outside the White House to cancel student debt on March 15.Paul Morigi / Getty Images file

The Biden administration has agreed to cancel billions of dollars in student debt for about 200,000 borrowers who say their for-profit colleges scammed them.

In a proposed settlement agreement filed Wednesday in federal court, the Education Department said it would fully discharge the debt of former students of 50 specific institutions whose applications for relief under a federal program were improperly rejected or have been languishing for years.

A judge must sign off on the agreement. A hearing is scheduled for July 28.

The plaintiffs filed the class-action lawsuit in 2019, contending that the Trump administration and then the Biden administration were slow-walking or improperly rejecting applicants to a student borrower relief program that had been beefed up during the Obama administration.

In a court filing, the plaintiffs claimed that the Education Department's "alleged policies of delay, presumptive denials, and insufficient Form Denial Notices left them in a state of indefinite limbo, unsure of whether or when they would need to repay their federal student loans or how they could prove their entitlement to [borrower defense] relief."

If a judge approves the proposal, the students would also receive refunds of amounts already paid to the department, and they would be entitled to some form of credit repair. The settlement agreement also calls for the loan relief applications of 68,000 more students from different schools to be fast-tracked.

The proposed agreement was first reported by Politico.

The Education Department did not immediately respond to a request for comment.

Eileen Connor, the director of Harvard Law School’s Project on Predatory Lending, which assisted the plaintiffs, said the “momentous proposed settlement will deliver answers and certainty to borrowers who have fought long and hard for a fair resolution of their borrower defense claims after being cheated by their schools and ignored or even rejected by their government.”

“It will not only help secure billions of dollars in debt cancellation for defrauded students, but charts a borrower defense process that is fair, just, and efficient for future borrowers,” Connor said in a statement.

The deal was reached just weeks after the administration announced the cancellation of $5.8 billion in federal student loans for hundreds of thousands of students who attended schools affiliated with Corinthian Colleges.