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200,000 student-loan borrowers get a 'grand slam' after a federal judge moves them closer to $6 billion in debt cancellation

asheffey@businessinsider.com (Ayelet Sheffey) - 

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A federal judge granted preliminary approval of a settlement that will give relief to 200,000 defrauded borrowers.

This follows Biden's Education Department agreeing to the debt relief in June.
Biden has taken steps to clear up the backlog of claims from defrauded borrowers under Trump.

Thousands of student-loan borrowers defrauded by for-profit schools just got one step closer to getting their debt wiped out.

Borrowers who believe they were defrauded by a school can file a "borrower defense to repayment" claim, which gives those borrowers debt relief if they can prove a school's wrongdoing. But under former President Trump's Education Secretary Betsy DeVos, those claims ran up a backlog and left many borrowers dealing with debt burdens that could have been eligible for discharge, prompting Harvard Law School's Project on Predatory Student Lending to file a lawsuit in 2019 against DeVos.

While the suit was not resolved under the former administration, President Joe Biden's Education Department announced in June that it agreed to a settlement that would give 200,000 defrauded borrowers around $6 billion in relief — and Federal Judge William Alsup granted that settlement preliminary approval last week, calling it a "grand slam" for borrowers.

"Preliminary approval is an important milestone for this settlement and for our clients, bringing us one step closer to finally delivering certainty to borrowers who have fought long and hard for a fair resolution of their borrower defense claims," President of the Project on Predatory Student Lending Eileen Connor said in a statement. "When our clients brought this case in 2019, it was based on the fact that many of them had already been waiting years with no answers, and that harm has only compounded over time. As always, our focus is our clients, and we look forward to helping them finally secure the justice they are owed."

Following the preliminary approval, the Education Department has started sending notices to borrowers allowing them to submit comments on the proposed settlement until September 8. Alsup is also tentatively granting a number of motions to intervene in the settlement filed by for-profit schools who argued they would not have the chance to respond to borrower defense claims, harming their reputations.

Jason Altmire, president and CEO of Career Education Colleges and Universities — which represents for-profit institutions — said in a statement that he is "pleased" Alsup is allowing schools to intervene.

"The parties' proposed settlement has unfairly impugned the reputations of more than 150 schools, all without the basic procedural fairness to which these schools are entitled under the Department's own regulations," Altmire said.

Since Biden took office, his Education Department has taken a number of actions to provide relief to students defrauded by for-profit schools. In the beginning of June, it wiped out $5.8 billion in student debt for all remaining borrowers defrauded by Corinthian College — the biggest group discharge the department has taken to date. That came after smaller discharges, like those for former students of ITT Technical Institutes and DeVry University.

If the settlement gets final approval, it will be significant for the 200,000 borrowers who have been long awaiting relief. But Biden is also in the process of deciding whether he will cancel student debt for millions of federal borrowers, reportedly considering $10,000 in relief for those making under $150,000 a year. He is expected to make that announcement before August 31, along with a decision on further extending the payment pause on student loans past September.