On June 22, 2022, the Department of Education agreed to a proposed settlement agreement in the class action lawsuit Sweet v. Cardona. In that case, a group of federal student loan borrowers sued the Department of Education for ignoring their applications for student loan cancellation under the Department’s “borrower defense to repayment” rules. Those rules allow borrowers to have their federal loans canceled if their school engaged in material misrepresentations, omissions, or other forms of misconduct.
Who Is Impacted by This Proposed Settlement?
Federal student loan borrowers are covered by this class action lawsuit and settlement if they submitted a borrower defense application to the US Department of Education before June 22, 2022.
What Does the Settlement Mean for Borrowers with Pending Borrower Defense Applications?
The settlement divides covered borrowers into two groups and provides each group different benefits:.
- Automatically Granted Group (around 200,000 borrowers): The Department of Education will automatically grant the borrower defense applications from borrowers who attended certain schools. Those schools are listed here. Within a year of settlement approval, the Department will discharge (ie, cancel) covered borrowers’ outstanding federal student loans relating to these schools, provide borrowers with refunds of any amounts they previously paid toward these loans, and delete any adverse credit history associated with these loans on borrowers’ credit reports.
- Decision Deadline Group (around 64,000 borrowers): The Department of Education will have specific deadlines by which it must decide all other borrowers’ applications, depending on when the borrower applied for relief. The specific details of these deadlines can be viewed here. Borrowers whose claims are granted will receive a discharge of the outstanding loans associated with their application(s) and a full refund of amounts paid on those loans, and the Department will delete any adverse credit history associated with those loans. If the Department fails to decide a borrower’s application by the deadlines set, it will grant the borrower defense and provide the relief described above.
The Department of Education has agreed to put all covered borrowers’ loans in forbearance or stopped collection – meaning borrowers will not have to make payments – and no interest will accrue while it is putting this settlement into effect.
What About Borrowers Whose Applications Were Denied?
The Department is rescinding all denial notices provided to borrowers between December 2019 and October 2020. Borrowers whose denials are rescinded will either have their borrower defense application automatically granted or decided on the timeline described above, depending on which school the borrower attended. These borrowers do not need to submit another application or additional materials to have their application reconsidered.
What About Borrowers Who Submit a Borrower Defense Application After June 22, 2022?
The Department of Education has agreed to review and resolve new borrower defense applications submitted after June 22, 2022 within 36 months (3 years) of when the court approves the settlement. If the Department fails to meet this deadline, it will discharge outstanding loans associated with those applications, provide a full refund of amounts paid on those loans to those borrowers, and will delete any adverse credit history associated with those loans.
When Will The Department of Education Put the Settlement Into Effect?
This settlement cannot go into effect without the court’s approval. Court approval includes two steps: preliminary approval and final approval. The court will hold a hearing on whether to grant preliminary approval to the settlement on July 28, 2022. If preliminary approval is granted, the Department of Education will send notice to all class members (i.e., borrowers in the automatically granted group or the decision deadline group) with additional information explaining how they can comment on the proposed settlement. The court will then review those comments and decide whether to provide final approval.
We expect a final decision on the settlement sometime in Fall 2022. This means that if the court approves the settlement, it will likely take effect for many borrowers in 2023. If the court does not approve the settlement, the parties will continue trying the case. Parties will complete summary judgment briefing, and if a decision is not reached, they will proceed to trial.
Have Questions? Need More Information?
The attorneys representing borrowers have posted more information about the lawsuit and the settlement here: https://predatorystudentlending.org/sweet-v-devos-class-members/.