For-profits oppose plan to forgive $6B in student loans to settle borrower defense case

Dive Brief: 

• Three for-profit institutions filed court documents this week opposing a $6 billion settlement proposal between the U.S. Department of Education and former students who allege the colleges they attended misled them. 
• Under the settlement agreement in the Sweet v. Cardona case, the Education Department would automatically grant debt relief to roughly 200,000 borrowers who filed a borrower defense to repayment claim against one of 150-plus colleges. The borrower defense rule allows defrauded students to have their loans forgiven. 
• Two for-profit college owners — Lincoln Educational Services Corp. and Everglades College — as well as American National University filed motions Wednesday to intervene in the case. The colleges argue that the settlement would harm their reputations and violate current borrower defense regulations. 

Dive Insight: 

A federal judge is to review the settlement agreement in late July. If approved, it would automatically grant debt relief to hundreds of thousands of students who attended certain colleges and create a deadline for the Education Department to review an additional 68,000 borrower defense applications. 

The list of institutions whose borrower defense claims will receive automatic relief is largely composed of for-profit colleges, some of which are now closed. 

American National University, Lincoln Educational Services Corp. and Everglades College are all on the list. American National is an online institution, Lincoln Education Services Corp. has campuses nationwide and Everglades College’s institutions are located throughout Florida. 

The institutions argue that current regulations prevent the Education Department from granting borrower defense applications to claimants without first giving colleges a chance to address the allegations. They contend the settlement sidesteps this process, violating their regulatory protections. 

American National University and Lincoln Educational Services Corp., which filed their motion together, also wrote they were concerned about whether the settlement would lead the Education Department to collect money from the listed institutions to cover the costs of the forgiven loans. 

The two institutions argued that it would be unlawful for the Education Department to seek recoupment for loans forgiven outside of “the existing regulatory framework.” However, they said the settlement proposal doesn’t foreclose that possibility.

Career Education Colleges and Universities, a group representing for-profit institutions, criticized the proposed settlement Wednesday. 

“The U.S. Department of Education’s proposed settlement would grant debt cancellation relief to hundreds of thousands of borrowers without providing a meaningful process for assessing those borrower defense claims, and without giving all stakeholders a seat at the table to ensure that the outcome is fair and just for students, institutions, and taxpayers,” CECU President Jason Altmire said in a statement. 

The Project on Predatory Student Lending is representing student borrowers in the lawsuit. Eileen Connor, director of the group, said in a statement that plaintiffs will respond to the “meritless filings” from the for-profit institutions. 

“It is disappointing but not surprising that these companies are, as always, looking out for their bottom lines at the expense of students who have suffered serious harm and waited years for justice,” Connor said.

Student loan borrowers launched the class-action lawsuit in 2019, alleging the Trump administration’s Education Department was refusing to grant them debt relief. The two parties neared a settlement in early 2020, but the deal fell apart when the Education Department began issuing blanket denials of borrower defense applications. 

The case continued under the Biden administration, which has made targeted student loan forgiveness a priority. 

Earlier this year, the Education Department announced it was automatically discharging $5.8 billion worth of federal loans for those who attended Corinthian Colleges, a shuttered for-profit chain. And the agency recently proposed new borrower defense regulations that would make it easier for students to receive debt relief.