200,000 Borrowers Have Student Loan Debt Forgiven
If you’ve been defrauded by a college and have been paying for it ever since—all while hoping for student loan forgiveness—you might feel like you’ve just won the lottery. On June 23, the Biden administration announced that it will cancel student loan debt for approximately 200,000 former students, to the tune of $6 billion.
These students attended one of more than 150 schools named in a class-action settlement, Sweet v. Cardona. The students claimed that in exchange for their exorbitant payments, they received an inferior and shoddy education. In short, they felt defrauded—enough to sue the Department of Education.
Some of the bigger names on the list of 150 for-profit schools include DeVry University, Grand Canyon University and the University of Phoenix. Some of the lesser-known schools on the list include the Robert Fiance Institute of Florida and the Court Reporting Institute of St. Louis.
This has all come against the backdrop of talk that the White House may cancel $10,000 in federal student debt for borrowers who earn less than $150,000 a year. So far it’s just talk, but the White House has suggested that a decision will be coming soon.
While navigating the high cost of food and gas and other inflationary expenses, there are about 43 million Americans currently paying down $1.75 trillion in student debt. So for some borrowers, that $10,000 student debt decision can’t come soon enough.
Why This Student Loan Debt Is Being Forgiven
This $6 billion in student loan forgiveness is part of a solution to a problem that’s been festering for a long time—predatory for-profit schools that left their students in worse-off positions than if they hadn’t attended and taken out loans.
Back in 2010, the U.S. Government Accountability Office (GAO) sent people undercover to 15 for-profit colleges and found that all 15 colleges made deceptive or otherwise questionable statements to the applicants. Four colleges actually encouraged applicants to engage in fraudulent practices, such as lying on federal aid forms.
In 2019, 264,000 borrowers banded together and sued the Department of Education, hoping to take advantage of a federal program called “borrower defense to repayment.” While the Sweet v. Cardona settlement ensures 200,000 borrowers will no longer have to pay their loans and get back the money they paid, an additional 64,000 claimants are still having their cases reviewed.
The borrower defense to repayment program allows students to get their money back, only if there’s hard proof that they were truly deceived. So if you thought you had lousy teachers or didn’t simply didn’t get the education you were hoping for, that’s unlikely to be enough to get your federal student loan debt erased.
This settlement was just one of several instances of student loan forgiveness to make the news this year. Earlier this month, the Biden administration eliminated almost $6 billion in loans for 580,000 borrowers who attended Corinthian Colleges, which was shut down in 2015. Among other things, the for-profit education institution was accused of deceptive marketing to students and lying to the government about its graduation rates.
In that case, borrowers weren’t subject to a crippling tax bill. Often, when debts are forgiven, you still have to pay taxes on them, since it’s treated as “income.” But the IRS didn’t recognize the borrowers’ forgiven debt as income, and it seems likely that they won’t in this case either.
How to Apply for Student Loan Forgiveness If You Were Scammed
If you’re not one of the 264,000 involved in this class-action lawsuit, and you’re buried in student loans, you may be wondering where you fit into all of this.
If you went to a school and feel you were duped or scammed out of your money, you can apply for forgiveness through the Department of Education’s borrower defense to repayment program. The application process only takes about 30 minutes, according to the website, but you’ll wait longer for an answer—in some cases it can take months, if not years. You can also call the Department of Education’s borrower defense hotline at 855-279-6207, from 8 a.m. to 8 p.m., ET, Monday through Friday.
Student Loan Debt Is Still a Major Issue for Borrowers
Meanwhile, the decision to forgive $6 billion in student debt does nothing to solve the problem of student debt in general. While the U.S. Department of Education has paused student loan repayments until Aug. 31, 2022, anxious borrowers are looking ahead to what will happen when their payments are restarted.
“[The] announcement is great news for thousands of borrowers in need of relief and is a step in the right direction, but it doesn’t change the college affordability calculations facing today’s students,” says Josh Lachs, CEO of Moneythink, an educational tech nonprofit with offices in San Francisco and Chicago.
“Students still have to make incredibly tough decisions about how to pay for college; most low-income students will still need loans to get to and through school, and information about college costs and financial aid is still complex, inconsistent, and downright confusing,” Lachs adds.
How To Manage Student Loan Debt Now
Before this latest settlement, the Biden administration had forgiven $25 billion worth of student loans. If your debt wasn’t among that, but you’re feeling bogged down by what you still owe—you may have options.
“For recent graduates who are currently buried in student debt, every borrower’s situation is unique but there are steps you can take to ease the burden,” Lachs says. “If you hold federal loans and are a teacher, or work in a government or not-for-profit job, the first step would be investigating loan forgiveness as an option. If your loans are privately held, consider connecting with a student loan assistance organization to make a thoughtful plan for paying down your loans.”
In the meantime, you can always wait and hope for relief from the Biden administration in the form of $10,000.
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