Federal judge denies request for 18-month delay in landmark borrower defense settlement

Dive Brief: 

A federal judge on Thursday denied the U.S. Department of Education’s request for an 18-month extension to decide borrower defense claim decisions due by the end of January, according to lawyers representing the borrowers. 
The affected borrowers belong to the last of three groups covered under a landmark 2022 settlement with the Education Department to resolve a class-action lawsuit that accused the agency of stonewalling borrower defense applications. Under that agreement, the borrowers were set to receive automatic relief if the agency didn’t decide their cases by Jan. 28. 
U.S. District Judge William Alsup declined to provide any extension on claims filed by borrowers who attended one of 151 institutions that the Education Department previously said had strong indications of engaging in “substantial misconduct.” For other borrowers, Alsup extended the deadline for the Education Department to resolve their cases to April 15. 

Dive Insight: 

The Sweet v. McMahon lawsuit, originally filed in 2019 during the first Trump administration, accused the Education Department of improperly delaying decisions on borrower defense to repayment claims. The program provides debt relief to borrowers who were defrauded by their colleges. 

Three years later, under the Biden administration, the Education Department struck a settlement that promised either timely decisions or automatic relief to three separate groups of borrowers. 

The agency said it would automatically clear debts for the first group, roughly 200,000 borrowers who attended one of 151 colleges listed by the Education Department. In court documents, the Education Department said that “attendance at one of these schools justifies presumptive relief” because the institutions had strong signs of misconduct. 

The second group is composed of borrowers who didn’t attend one of those colleges. The Education Department promised to make decisions for them by certain dates depending on when those borrowers applied for relief — or automatic relief if it didn’t meet those deadlines. 

The majority of those borrowers have had their claims approved, with only a small share still pending, according to a court filing earlier this month. 

The last group is composed of those who filed borrower defense applications after the Education Department had already struck the settlement but before it received final approval. That group is composed of roughly 207,000 people who filed over 251,000 claims following the settlement’s announcement. 

Alsup denied granting any extension to the Education Department for borrowers in that group who attended the agency’s list of 151 colleges. Around 80% of borrower defense applications filed by the last group involve one of those institutions, according to the Project on Predatory Student Lending, a legal nonprofit representing the borrowers. The remainder will face a roughly 2 and ½ month delay. 

“The Court sent a clear message today: borrowers deserve fair, timely decisions, not years of uncertainty,” Eileen Connor, president and executive director of PPSL, said in a statement Thursday. “This is a critical victory for people who have waited far too long for justice and relief, but this case isn’t over.” 

The Education Department is still “evaluating the impact of the order,” Ellen Keast, the agency’s press secretary for higher education, said in a Friday email. 

“We remain committed to doing the right thing for students, families, and taxpayers,” Keast said.

The Education Department asked for the delay in early November, projecting that it still would not have reached decisions on roughly 193,000 borrower defense applications from the final group by the Jan. 28 deadline. The agency argued it didn’t have the resources it needed to adjudicate the group’s claims and had seen “staffing dwindle at the time when resources for postclass adjudication are most needed.”

The Education Department has cut roughly half of its staff under President Donald Trump, who signed an executive order in March for the agency to close by the “maximum extent appropriate and permitted by law.”

The final group in the settlement has a total outstanding loan balance of $11.8 billion, according to the agency’s court filing. The Education Department said it had issued decisions on roughly 54,000 borrower defense applications for the group by October, and it had denied roughly half of them.