Landmark Borrower Defense Settlement to Cancel Over $6 Billion in Student Loans for 200,000 Borrowers | Release
Department of Education agrees to resolve all pending borrower defense claims under proposed settlement agreement in Sweet v. Cardona
BOSTON – Student borrowers filed a joint motion for approval of a settlement with the US Department of Education last night in the class action lawsuit Sweet v. Cardona. The agreement states that the Department will immediately approve the borrower defense applications of approximately 200,000 individuals, canceling student loans that, when the class members attended school, totaled approximately $6 billion in aggregate, and the Department will process the borrower defense applications for the remaining Class Members within a set timeframe, using standards favorable to borrowers.
Sweet v. Cardona (previously Sweet v. DeVos) was filed in the United States District Court for the Northern District of California in 2019 by seven named plaintiffs, on behalf of themselves and all federal student loan borrowers whose borrower defense claims for loan cancellation were being ignored by the Department of Education. The plaintiff class includes approximately 264,000 class members who make up the current borrower defense backlog. The court will now independently review the settlement, hear from class members, and set a hearing date before the settlement is approved.
"This 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,” said Eileen Connor, Director of the Project on Predatory Student Lending. “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.”
Details of the proposed settlement include:
The class will consist of approximately 264,000 people who have a borrower defense application pending as of the date of the signed agreement, June 22, 2022. These class members received more than $7.5 billion in disbursements from the schools listed on their borrower defense applications.
The class includes all borrower defense applicants who previously received a form denial notice between December 2019 and October 2020. All form denials will be rescinded.
The class is divided into two groups:
The first group consists of the approximately 200,000 borrower defense applicants who borrowed to attend certain schools. The Department has determined that attendance at one of these schools justifies presumptive relief based on strong indicia regarding substantial misconduct by the schools, whether credibly alleged or in some instances proven, and the high rate of class members with applications related to the schools. These schools are listed in an attachment to the settlement and can be viewed here. This group will automatically get “full settlement relief” — which includes full discharge of their loans, refund of amounts paid, and credit repair.
The second group consists of the rest of the class, approximately 64,000 people who borrowed to attend schools that are not on the list. These class members will get decisions on their applications within rolling deadlines, based on how long their application has been pending. These applications will be reviewed using a “streamlined” process that is favorable to borrowers. Class members will have an opportunity to revise and resubmit their applications if they do not get approved on initial review. If the Department does not meet any of the deadlines included in the settlement agreement, the affected class member will automatically get full settlement relief.
All class members’ loans will remain in forbearance/stopped collection status with zero interest until they receive either settlement relief or a final, appealable denial.
People who apply for borrower defense after the execution date of the settlement agreement (June 22, 2022) but before the date of final approval of the settlement will not formally be part of the class. However, as part of the settlement, the Department agrees that these people will get a decision on the merits of their application within 36 months of the final effective date of the settlement, and will receive full settlement relief if the Department fails to issue a decision in that time.
For more details on the proposed settlement, visit the FAQ on our website.
“On the day I graduated college, I never imagined that I would find myself locked in a nearly 20 year battle for justice against a for-profit education company that defrauded me, and against the federal government for failing to protect me from this fraud,” said Theresa Sweet, plaintiff and former Brooks Institute student. “More than a quarter million defrauded students have been waiting far too long for justice that should have come without delay, but for which we instead had to fight tooth and nail. But we didn’t give up. Defrauded borrowers stepped up to the plate over and over to share their stories, speak to the court, and refuse to take any of this lying down. Now, when I look back at the day I graduated from college, I think of a lesson my school never taught me — know your rights, and never stop fighting for them.”
“Our clients have been waiting years for justice and this settlement has the potential to make a life-changing difference for tens of thousands of people and their families, said Joe Jaramillo, Senior Attorney at HERA. “Throughout this arduous legal battle, our clients continued to speak out and demand that the government make final decisions on borrower defense applications so that students fraudulently induced into federal loans by predatory for-profit schools can have those loans cancelled. This settlement does not remedy all woes and there is still a lot of work to be done to build a truly fair borrower defense process, but it does provide long overdue relief for our clients and a path toward justice for all borrowers."
Sweet v. Cardona (previously DeVos) Case Background:
Seven students brought this lawsuit against then-Secretary DeVos’ Department of Education in June 2019. At the time, the Department of Education had halted all processing of borrower defense claims and refused to adjudicate any borrower defense from any student for well over a year.
Immediately after filing the lawsuit, the students asked the court, in a motion for class certification, to let them represent all other borrowers whose borrower defense claims for loan cancellation had stalled. The motion included almost 900 affidavits from students describing the harm that the Department’s inaction had caused – with 96% saying their lives were made worse by attending their school. In October 2019, the court certified the class of over 200,000 borrowers with pending claims. Many had been pending for years.
After a proposed settlement agreement was filed in spring of 2020, the Department of Education sent out tens of thousands of blanket denials of borrower defense claims. Many of these form letters denied relief due to a “lack of evidence,” despite the extensive evidence submitted, even in cases where other government enforcement agencies had found fraud. After a historic hearing held on Zoom and attended by over 500 student borrowers in fall of 2020, the judge found the Department of Education was not acting in good faith by sending out blanket denials and rejected the proposed settlement.
The judge also ordered discovery, allowing lawyers for the student borrowers in this case to obtain documents and to depose officials at the Department of Education. A review of these documents and depositions revealed alarming evidence that the U.S. Department of Education created a sham process designed to deny borrowers debt relief regardless of evidence. In March 2021, student borrowers filed a supplemental complaint citing this new evidence.
In February 2022, the U.S. Court of Appeals for the Ninth Circuit overruled the district court’s order allowing the student borrowers to depose former Secretary DeVos. Also in February 2022, borrowers filed a new brief in the lawsuit expressing frustration with the lack of action by the Department. Since then, the court has set a schedule to move the case to resolution, with a summary judgment hearing to be conducted in July if necessary (that is, if the current proposed settlement does not receive preliminary approval).
The borrowers are represented by the Project on Predatory Student Lending and Housing and Economic Rights Advocates (HERA).
About the Project on Predatory Student Lending
Established in 2012, the Project on Predatory Student Lending represents former students of predatory for-profit colleges. Its mission is to litigate to make it legally and financially impossible for federally funded predatory schools to cheat students. The Project has brought a wide variety of cases on behalf of former students of for-profit colleges. It has sued the federal Department of Education for its failures to meet its legal obligation to police this industry and stop the perpetration and collection of fraudulent student loan debt.
About HERA
Housing and Economic Rights Advocates (HERA) is a California statewide, not-for-profit legal service and advocacy organization dedicated to helping Californians — particularly those most vulnerable — build a safe, sound financial future, free of discrimination and economic abuses, in all aspects of household financial concerns. It provides free legal services, consumer workshops, training for professionals and community organizing support, creates innovative solutions and engages in policy work locally, statewide and nationally.