Biden administration in violation of $6 billion student loan settlement

A group of student loan borrowers is asking a federal judge to enforce a $6 billion settlement they say the Biden administration has violated by missing a court-ordered deadline to cancel their debt.

The Education Department had until Jan. 28 to discharge the loans, issue refunds and repair the credit of about 200,000 borrowers who say their colleges defrauded them, but at least 55,000 of those people are still awaiting debt cancellation. Attorneys for the borrowers filed a motion Tuesday for the court to intervene and order the department to promptly provide full relief to the group.

In the filing, attorneys say the Education Department has refused to commit to a date by which everyone subject to the agreement will receive their full settlement relief. That lack of clarity, they say, only compounds the stress of borrowers who in some cases have been waiting nearly a decade for loan forgiveness.

“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, a group representing the borrowers. “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.”

The Education Department did not immediately respond to requests for comment.

The settlement resolves a class-action lawsuit filed in 2018 by people who accused the department of ignoring their applications for loan forgiveness through a federal program known as borrower defense to repayment. It was finalized in November 2022 by U.S. District Judge William Alsup of the Northern District of California following contentious negotiations that spanned two administrations.

As part of the deal, the Education Department identified 153 institutions — many of which are for-profit colleges — as having evidence of “substantial misconduct … whether credibly alleged or in some instances can.” Anyone who attended those schools and applied for debt relief is entitled to full loan forgiveness under the agreement.

Days before the court-ordered deadline, the department told attorneys for the borrowers that it could not provide timely debt cancellation to about 11,500 people because of their complex loan records, according to the filing. The department also said it had sent cancellation notices to the former, not the current, student loan servicers of up to 40,000 additional borrowers and never verified whether that group received discharges.

Attorneys wrote to the Justice Department at the beginning of February and accused education officials of breaching the terms of the deal. Within weeks, Justice Department attorneys said the Education Department was further behind than initially disclosed, blaming student loan servicers that manage the government’s loan portfolio for supplying inaccurate information.

While the Justice Department is still investigating the matter, it identified three reasons for the delays: Some borrowers have complex loan consolidation histories that servicers must manually research to determine their loan forgiveness or refund amount. Others have payment track records that are not readily available and require servicers to reconstruct their billing histories. Some loan discharges are delayed because relief must be processed across multiple servicers.

Hours after Tuesday’s filing, Judge Alsup issued an order requesting the student loan servicers responsible for discharging loans in the settlement appear before the court on April 24. He insists they show cause why they should not be held in contempt for “frustrating the settlement.”

The settlement has been plagued by setbacks. It was threatened in July 2022 after several schools, including Lincoln Tech and Keiser University, said the deal did not assess the validity of the borrowers’ claims and would damage their reputation. On Dec. 5, the U.S. Court of Appeals for the Ninth Circuit heard oral arguments from three schools that are fighting to stop the settlement. Until the court makes a decision, the Education Department will hold off on discharging loans tied to those schools.

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