Biden administration cancels federal student debt of borrowers defrauded by their schools

The Biden administration is canceling the federal student debt of borrowers who say their schools defrauded them, settling a class action lawsuit originally filed against the Trump administration. 

"We are pleased to have worked with plaintiffs to reach an agreement that will deliver billions of dollars of automatic relief to approximately 200,000 borrowers and that we believe will resolve plaintiffs' claims in a manner that is fair and equitable for all parties," Education Secretary Miguel Cardona said in a statement Thursday.

The plaintiffs in the case, Sweet v. DeVos (now Sweet v. Cardona), had submitted "borrower defense" applications to cancel their federal student loan debt because of misconduct by their schools. They sued the Education Department four years ago, in 2018, because it was no longer issuing any decisions on borrower defense applications. The lawsuit challenged the way the Education Department dealt with these applications, making reference to "delays in issuing final decisions" under former Education Secretary Betsy DeVos, and the "denial of certain applications starting in December 2019." 

According to the legal organization the Project on Predatory Student Lending, under the settlement, the Education Department will "rescind all of the denial notices it issued between December 2019 and October 2020."

The settlement says that the administration will discharge these borrowers' student loan debts and refund any relevant payments made to the Education Department to pay off these debts — including debt that was fully paid off. 

Earlier this month, the Biden administration announced students who attended the now-defunct Corinthian Colleges chain would automatically have their federal student loans canceled, in an effort to bring closure to one of the most notorious cases of fraud in American higher education.

Under the new action, anyone who attended the now-defunct chain from its founding in 1995 to its collapse in 2015 will get their federal student debt wiped clean. It will erase $5.8 billion in debt for more than 560,000 borrowers, the largest single loan discharge in Education Department history, according to the agency.

As of December, the Education Department reported it had more than 109,000 pending applications from students alleging fraud by their colleges, according to the Associated Press.

Sarah Ewall-Wice and the Associated Press contributed to this report.