A controversial settlement agreement with significant implications for the country’s career colleges will return to center stage Wednesday. A hearing is scheduled on whether to delay dispersing $6 billion in student loan refunds to students who attended some 151 colleges and trade schools, nearly all of which are for-profit entities.
The taxpayer-funded refunds were scheduled for distribution on January 28 and could begin flowing as early as Wednesday, depending on the judge’s ruling.
The delay request came from a group of higher education institutions, which have also filed an appeal of the settlement agreement on the grounds it has damaged the schools’ reputations and denied the institutions their due process right to defend themselves.
The hearing before U.S. District Judge William Alsup of the 9th Circuit Court (Northern California), is the latest chapter in Sweet v. Cardona, a 2019 class action lawsuit alleging that the Trump Administration’s Department of Education (DOE) was unlawfully dragging its feet in resolving forgiveness claims filed by federal student loan borrowers under the department’s Borrower’s Defense to Repayment (BDR) program.
The lawsuit was brought by the Harvard Law School’s Project on Predatory Student Lending, a non-profit organization with ties to the former Obama Administration Department of Education officials who created the BDR policy. The initiative is designed to provide recourse for student borrowers who can demonstrate that their school misled them or otherwise violated applicable laws and regulations.
The Biden administration, an aggressive proponent of student debt forgiveness as a matter of public policy, agreed last June to settle Sweet with a blanket acceptance of 200,000 pending BDR claims. The deal was reached in secret by the Sweet plaintiffs and the Biden DOE. It was a break from the Obama-era BDR policy, which required that schools be allowed to present a defense. Instead, the 151 schools listed in the settlement were notified of the agreement just one day before its announcement.
Representatives of the career college industry say that while the settlement agreement does not impose any financial culpability on the listed schools, the entire for-profit education industry was damaged by the settlement — even before the court approved the deal in November.
“Schools began to see the impact as soon as the agreement came to light,” said Nicolas Kent, Chief Policy Officer at Career Education Colleges and Universities, a trade association representing proprietary higher education institutions. “We had calls from schools saying that students are asking about backing out [of their commitment to the institution, even though the settlement agreement doesn’t mean there was any wrongdoing [by a school on the settlement agreement list.]”
In a July statement on the settlement, Grand Canyon University echoed that opinion.
“GCU students are included in the settlement because the Department of Education, rather than evaluating underlying factual claims or analyzing the merits of applications, simply presumed students attending approximately 150 for-profit institutions were entitled to relief — purportedly based on some generalized ‘strong indicia’ of misconduct that is unsupported, unverified and not particularized to any institution.”
GCU officials claim a deep dive into the BDRs that would be approved under the Sweet settlement reveals few of the complaints hold up to scrutiny. Most, according to the school, are not supported by the student’s academic record or are incomplete.
In January, Lincoln Educational Services Corp., American National University, and Everglades College, Inc., all of whom appeared on the settlement agreement’s list of 151 schools, appealed the court’s approval of the deal and sought a delay of the loan repayments. The plaintiffs argue that the settlement has damaged their reputations, and that mass approval of BDR claims denies schools the right to defend themselves
Wednesday’s hearing will address only the schools’ request for payment delay. Their appeal of the settlement is still wending its way through the court docket.
But the fate of the appeal would be moot if Judge Alsop does not grant the repayment delay. Checks would be headed to some 200,000 happy people, the Biden administration would have a student debt win to tout, and the American taxpayer would be on the line for $6 billion.