US Government To Cancel Another $6 Billion In Student Loan Debt
(CNN) -- The Biden administration has agreed to cancel an estimated $6 billion in federal student loan debt for about 200,000 borrowers who have claimed they were defrauded by their college.
The administration had previously approved $25 billion in loan forgiveness for 1.3 million borrowers. Around 43 million Americans have federal student loan debt.
Many of the borrowers affected by the new agreement have been waiting years for the Department of Education to process their claims under a rule known as borrower defense to repayment. It allows borrowers who believe they were misled by their college, often over inflated job placement rates or the ability to transfer credits, to request federal student loan relief.
Seven of those borrowers filed a class action lawsuit in 2019 over the department's handling of the claims. Under former Education Secretary Betsy DeVos, processing of the applications stalled. But the Biden administration has been chipping away at the backlog.
The deal to wipe away the remaining federal student loan debt for the 200,000 affected borrowers was reached between the plaintiffs and the Department of Education as part of a proposed settlement agreement that was filed in federal court on Wednesday. It still must be approved by the judge.
About 200,000 borrowers will automatically get full debt relief -- no longer than one year after the date the agreement formally goes into effect, according to the proposed settlement agreement. Those eligible borrowers went to one of dozens of schools that the department has already determined engaged in misconduct that justifies debt relief, including The Art Institute, ITT Tech and Westwood College.
Another 64,000 borrowers who have already filed borrower defense claims may also be eligible for debt relief under the proposed settlement agreement and will get decisions on their applications within rolling deadlines, based on how long their application has been pending.
Both the plaintiffs and the Department of Education said they were pleased with the agreement.
"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 Harvard Law School's Project on Predatory Student Lending, which represented the borrowers.
In a statement, Education Secretary Miguel Cardona said the relief "will resolve plaintiffs' claims in a manner that is fair and equitable for all parties."
"Since day one, the Biden-Harris Administration has worked to address longstanding issues relating to the borrower defense process," he added.
Targeted debt relief
The Biden administration has so far taken a piecemeal approach to canceling federal student loan debt. It has already wiped away billions of dollars for other borrowers who were defrauded by their colleges, including $5.8 billion for 560,000 borrowers who attended the for-profit Corinthian Colleges system, which collapsed in 2015.
The administration has also temporarily expanded eligibility for what's known as the Public Service Loan Forgiveness program -- which cancels remaining federal student loan debt after a government or nonprofit worker has made 10 years of qualifying payments. The expansion has so far led to the cancellation of $6.8 billion for more than 113,000 borrowers.
The Biden administration has also made changes to existing income-driven repayment plans, bringing millions of borrowers closer to forgiveness.
More than $8.5 billion has also been canceled automatically for more than 400,000 borrowers who are permanently disabled and were previously eligible for debt relief but had not applied.
Biden is considering broader student loan forgiveness
In April, after facing months of pressure from other Democrats to cancel $50,000 per borrower, President Joe Biden said he was considering some broad student loan forgiveness, though a smaller amount.
On the campaign trail, Biden said he would support $10,000 in forgiveness. White House officials have indicated that he is also looking at setting an income threshold so that high-earning borrowers would be excluded from the debt relief.
The decision is expected to come before August 31, when the pandemic-related pause on federal student loan payments is set to end.
While broad student loan debt cancellation could deliver financial relief to millions of Americans, the implications of such a significant policy move -- intended and otherwise -- are complicated. On its own, the action would do nothing to bring down the cost of college for future borrowers or help those who have already paid for their degrees.
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