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US President agrees to cancel student debt of 200K borrowers who say they were defrauded

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President Biden has agreed to fully discharge the federal student loan debts of approximately 200,000 borrowers who claimed they were defrauded by their college but whose applications for relief have languished at the Education Department for years.

The agreement, which could wipe out more than $6 billion of student loan debt, was reached as part of a proposed class-action settlement filed in federal court Wednesday evening.

The plaintiffs in the case, Sweet v. DeVos (now Sweet v. Cardona), had submitted “borrower defense” applications to cancel their federal student loan debt because of misconduct by their schools. They sued the Education Department four years ago, in 2018, because it was no longer issuing any decisions on borrower defense applications. The lawsuit challenged the way the Education Department dealt with these applications, making reference to “delays in issuing final decisions” under former Education Secretary Betsy DeVos, and the “denial of certain applications starting in December 2019.”

According to the legal organization the Project on Predatory Student Lending, under the settlement, the Education Department will “rescind all of the denial notices it issued between December 2019 and October 2020.”

The settlement says that the administration will discharge these borrowers’ student loan debts and refund any relevant payments made to the Education Department to pay off these debts — including debt that was fully paid off.

Earlier this month, the Biden administration announced students who attended the now-defunct Corinthian Colleges chain would automatically have their federal student loans canceled, in an effort to bring closure to one of the most notorious cases of fraud in American higher education.

Under the new action, anyone who attended the now-defunct chain from its founding in 1995 to its collapse in 2015 will get their federal student debt wiped clean. It will erase $5.8 billion in debt for more than 560,000 borrowers, the largest single loan discharge in Education Department history, according to the agency.

As of December, the Education Department reported it had more than 109,000 pending applications from students alleging fraud by their colleges, according to the Associated Press.

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