A federal appeals court last month issued a ruling erasing $23 billion in student loan debt for an estimated 450,000 borrowers duped by false promises made by more than 150 for-profit colleges. The debt ruling for full settlement relief came on July 17 in a unanimous decision by a three-judge panel of the U.S. Court of Appeals for the 9th Circuit in the case known as Sweet v. McMahon.
“It makes clear that the federal government cannot simply disregard borrowers’ rights and its own legal obligations without consequence,” said Eileen Connor, the president and director of The Project on Predatory Student Lending, an advocacy organization that brought the lawsuit in 2019.
The case centered on a federal rule known as borrower defense to repayment that protects defrauded student loan borrowers who incurred massive debts on false promises and misrepresentations. The ruling found that more than 150 for-profit colleges used high-pressure sales tactics in their recruitment that targeted Black and Latino borrowers, veterans and other low-income consumers to extract the maximum amount of federal loans, Pell grants and veterans’ benefits with each enrollment. Connor shared that one student’s loan debt swelled from $250,000 to roughly $400,000 while she waited for the Education Department to decide on her borrower defense claim.
The case showed that these for-profit schools lured students with promises of high-paying careers in an array of disciplines including beauty culture, culinary arts, computer technology, court reporting and photography. Other for-profits solicited graduate-level students in business management, law and medicine.
Among these institutions are many of the largest and well-known for-profit schools like Capella University, three DeVry-branded schools, ITT Technical Institute, Keller Graduate School of Management and the University of Phoenix. A complete list of schools represented in the settlement is available at https://studentaid.gov/sites/default/files/sweet-v-cardona-school-list.pdf.
Full settlement relief means that the federal student loan(s) associated with the borrower’s attendance at the school will be discharged. Further, the Education Department will refund any amounts paid on those loans, and the credit report entries for those loans will be deleted from the borrower’s credit report. The settlement includes borrower defense applications filed on or before Nov. 15, 2022, as well as borrowers whose applications for borrower defense discharges were pending as of June 22, 2022. Any amounts paid to the Education Department on those loans will be refunded.
These actions will be taken 90 days from the court’s decision to notify affected borrowers that they will receive full relief. Until this relief is provided, lenders cannot make any efforts to collect on these loans.
Earlier research by the Center for Responsible Lending (CRL) probed the value of for-profit colleges and universities and posed the question, “Do Students of Color Profit from For-Profit College?”
Its eye-opening findings include:
- Black and Latino students enroll in for-profit colleges at much higher rates than other students, which puts them at risk of high student loan debt, default and failure to graduate.
- Students who attend for-profit colleges are more likely to need to borrow for their education and tend to borrow more than their peers at public or private nonprofit schools.
- Students who attend for-profit colleges are also less likely to graduate, more likely to default on their student loans and may face poor employment outcomes.
- An African American student at a for-profit college will borrow at the highest rates almost twice as frequently as African American students at a public college (35% vs. 19%), regardless of income.
As early as 2012, a two-year investigation by the U.S. Senate’s Health, Education, Labor and Pensions Committee revealed that for-profit colleges collected over $30 billion annually in federal funds, making up 25% of Department of Education student aid and nearly half of military and veteran educational benefits. The committee also found that more than half of the students who enrolled in 2008-2009 withdrew by mid-2010, and these attendees accounted for nearly half of all federal student loan defaults.
More recently, CRL issued this summer a new policy brief calling on Congress to use its authority to respond to the continuing student loan crisis:
“Congress should eliminate the new borrowing limits that will push students towards higher-cost private loans, or worse, make education completely inaccessible. Congress should also restore and maintain adequate funding to the Department of Education, investing in programs like subsidized loans and Pell grants that help lower- and middle-income borrowers.”
Charlene Crowell is a senior fellow with the Center for Responsible Lending. She can be reached at charlene.crowell@responsiblelending.org.
