For-profit schools appeal student loan cancelation settlement for 200,000 borrowers

Three for-profit colleges appealed to block a settlement that would cancel more than $6 billion in student loans for 200,000 borrowers who applied for a debt discharge because they believed their schools misled them or engaged in other misconduct.

The settlement, which involved over 100 schools, resolved a class-action lawsuit filed by lead plaintiff, Theresa Sweet, against Betsy DeVos, the U.S. Secretary of Education under the Trump administration, after DeVos systematically denied these borrower defense applications in form denials.

American National University, Everglades College Inc., and Lincoln Educational Services Corp. filed the notice to appeal the settlement that was announced in June and approved by the Education Department in November.

The appeal marks yet another impediment for students who were saddled with debt because of what borrower advocates called predatory lending practices by for-profit colleges.

"This appeal demonstrates just how desperate these schools are to deny justice for borrowers, and we will not stop fighting until students get the relief they deserve,” Eileen Connor, director of the Project on Predatory Student Lending, said in a statement. “The court’s decision granting approval of this settlement is clear and unequivocal, and we are confident the 9th Circuit will agree with Judge Alsup that these claims are without merit.”

The Project on Predatory Student Lending (PPSL) and the Housing & Economic Rights Advocates (HERA) represented the plaintiffs.

Settlement terms

Student loan borrowers can apply for a so-called "borrower defense to loan repayment" — often shortened to borrower defense — if they believe their school deceived them or engaged in some other misconduct that ran afoul of state laws, according to the Education Department. The remedy is the dismissal of some or all of federal student loans.

Under the settlement, about 200,000 of the class-action borrowers who applied for borrower defense and whose school is on the settlement list are entitled to automatic relief that includes full loan cancelation, refunds of amounts paid, and credit repair, according to the Project for Predatory Student Lending.

American National University, Everglades College, and Lincoln Educational Services (Lincoln Technical Institute) are on that settlement list of schools. They are asking for a stay pending appeal to prevent any borrowers from getting relief until the appeal is decided.

"Plaintiffs' position is that unless the court agrees to issue a stay, the appeals will not block automatic relief (or any other settlement relief)," according to PPSL attorneys. "However, the effective date of the settlement will be delayed until after the Jan. 26 status hearing, so no relief will be issued until after that date."

The appeal, if successful, would block the automatic discharge for those 200,000 borrowers.

A second group of class members whose school isn’t on the list — representing about 64,000 borrowers — “will get decisions on their [borrower defense] applications within rolling deadlines, based on how long their application has been pending,” according to a PPSL June press release.

If they don’t get an approval after the initial review, they can revise and resubmit their applications. If the Education Department fails to meet any deadlines, “the class member will automatically get full settlement relief,” the release stated.

For borrowers unsure whether they are a class member, check the Project for Predatory Student Lending’s website for class members.

Ronda is a personal finance senior reporter for Yahoo Finance and attorney with experience in law, insurance, education, and government. Follow her on Twitter @writesronda

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