Class-action settlement provides $7.5 billion in student loan relief

·3 min read

The Education Secretary on Thursday announced a settlement of claims that would give roughly 264,000 student loan borrowers approximately $7.5 billion in debt relief.

The settlement resolves a class-action lawsuit filed by lead plaintiff, Theresa Sweet, against Betsy DeVos, the U.S. Secretary of Education under the Trump administration, after the education department sidestepped Obama-era regulations and systematically denied relief claims in form denials.

It could also provide a path forward for students who are saddled with college debt because of predatory lending practices.

"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,” Eileen Connor, director of the Project on Predatory Student Lending, said in a statement. “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.”

The Project on Predatory Student Lending and the Housing & Economic Rights Advocates (HERA) represented the plaintiffs in Sweet v. Cardona, originally Sweet v. DeVos. The proposed settlement still must be court-approved in a July 28 hearing.

Borrowers eligible for relief under the settlement

WASHINGTON, DC - MAY 12: Student loan borrowers gather near The White House to tell President Biden to cancel student debt on May 12, 2020 in Washington, DC. (Photo by Paul Morigi/Getty Images for We, The 45 Million)
Credit: Getty Images

There are two types of class members eligible for relief under the settlement.

The first group are borrower defense applicants who previously received a form denial notice from the Department of Education between December 2019 and October 2020 and attended certain for-profit schools.

The second group of class members are borrowers whose school isn’t on the list, but are still eligible for relief. Loan denials will be rescinded and class members’ loans will remain in forbearance with zero interest until they receive either settlement relief or a final denial.

If you aren’t sure whether you are a class member, you can check on the Project for Predatory Student Lending’s website for class members.

Loan discharge, refunds, and credit repair part of settlement terms

The type of relief received will vary depending on the class member type.

The first group of class members — approximately 200,000 borrowers — whose school is on the list will “automatically get “full settlement relief, which includes full discharge of their loans, refund of amounts paid, and credit repair,” according to a press statement by Project for Predatory Student Lending.

The second group of class members — approximately 64,000 — borrowers whose school isn’t on the list “will get decisions on their applications within rolling deadlines, based on how long their application has been pending,” according to Project for Predatory Student Lending.

The second group also will also be able to revise and resubmit their applications if they don’t get an approval after the initial review. If the Education Department fails to meet any deadlines, “the class member will automatically get full settlement relief.”

“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 canceled,” Joe Jaramillo, senior attorney at HERA, said in a statement. “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."

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Ronda is a personal finance senior reporter for Yahoo Money and attorney with experience in law, insurance, education, and government.

Follow her on Twitter @writesronda Read the latest personal finance trends and news from Yahoo Money. Follow Yahoo Finance on Twitter, Instagram, YouTube, Facebook, Flipboard, and LinkedIn

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