$6B borrower defense settlement gets tentative OK, but colleges can intervene

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Dive Brief:

  • A federal judge Thursday tentatively approved a $6 billion class-action settlement between the U.S. Department of Education and student loan borrowers who say their colleges misled them — while also ruling those institutions can weigh in on the case.
  • The proposed settlement is “fair, reasonable, and adequate” to borrowers to be covered by the class action, U.S. District Judge William Alsup wrote
  • Four colleges have moved to intervene in the case, Alsup wrote in a separate order. Alsup set an Aug. 25 deadline by which other interested parties must file motions to intervene. If those motions are approved, the colleges will become legal parties in a suit that was originally just between the students and the Education Department. The court will determine if the settlement is fair at a final hearing set for Nov. 3.

Dive Insight:

In June, the Ed Department announced a settlement proposal in a lawsuit dating to 2019, Sweet v. Cardona, which alleged the agency improperly delayed and denied borrower defense to repayment claims. Borrower defense claims allow student loan borrowers to have their debts forgiven if their colleges misled them.

The proposed settlement would automatically forgive the federal student loans of roughly 200,000 borrowers who attended more than 150 colleges, including large for-profit institutions like Capella and Walden universities. The Education Department also promised a decision within 30 months for some 68,000 students who filed borrower defense applications but went to colleges not named in the settlement.

The fact that the settlement would not require borrower defense applications to be further adjudicated has drawn criticism from the higher education sector.

A mix of for-profit and nonprofit institutions filed motions in mid-July to intervene in the case. They argued the settlement would deny them the opportunity to address allegations targeting them and that it violated regulatory protections. Lawyers representing student borrowers called those arguments meritless.

Thursday’s ruling gives affected colleges a foothold to fight against the Education Department’s plans.

“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,” Jason Altmire, president and CEO of Career Colleges and Universities, an association representing for-profit colleges, said in a statement. “We are confident that these schools’ participation in the case will ensure a more just outcome for everyone involved.” 

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