Hundreds of thousands of borrowers are expected to receive at least $6 billion in student loan forgiveness under a landmark settlement agreement between the Biden administration and a class of student loan borrowers. But a legal organization representing the borrowers is accusing a major student loan servicer of violating the terms of the agreement.
The accusation is just the latest problem plaguing loan servicing as student loan payments resume following the end of the student loan pause last month.
Here’s the latest.
Student Loan Forgiveness And Other Debt Relief For 260,000 Borrowers In Landmark Settlement
Last spring, the Supreme Court allowed a sweeping settlement agreement between the Biden administration and hundreds of thousands of student loan borrowers to proceed.
The settlement agreement resolved Sweet v. Cardona, a multi-year class action lawsuit brought by student loan borrowers against the Education Department over stalled or rejected Borrower Defense to Repayment applications. The Borrower Defense program allows borrowers to apply for student loan forgiveness if their school engaged in certain kinds of misconduct, such as misrepresenting admissions selectivity or career prospects, in order to convince them to enroll. In the Sweet lawsuit, which was initiated against the Trump administration, borrowers had alleged that the Education Department illegally delayed our improperly denied relief for thousands, leaving borrowers in limbo for years or rejecting their claims for no logical reason.
Under the terms of the approved settlement, the Education Department approved $6 billion in student loan forgiveness for over 200,000 Borrower Defense applicants who had attended one of several dozen institutions on an approved list of schools. Borrowers could also be entitled to other relief including refunds of past payments they made, and repairs to damaged credit reports. The department also agreed to expedite processing for certain other borrowers applying for the Borrower Defense program.
The department began implementing the settlement earlier this year. To date, the department has initiated the process of discharging the federal student loan debt for at least 128,000 class members, according to the Project on Predatory Student Lending, the legal group representing the class of student loan borrowers.
Group Accuses Servicer Of Interfering With Student Loan Relief Under Settlement
One feature of the Sweet v. Cardona settlement agreement is that class members approved for student loan forgiveness should not have to make payments on their loans while the discharges are implemented. Borrowers are supposed to be in a forbearance status until their balances are zeroed out — even as the student loan pause ends and payments resume for most borrowers.
But the Project on Predatory Student Lending is accusing MOHELA, a major Education Department loan servicer, of notifying Sweet class members that they have to start repaying their loans in October, in violation of the settlement agreement.
“It has recently come to our attention… that MOHELA is failing to follow the Department’s instructions to hold class members’ Relevant Loan Debt in forbearance pending the effectuation of settlement relief,” said the Project in a letter to MOHELA sent on Wednesday. “Specifically, a number of Sweet class members have reached out to us throughout September 2023 detailing instances in which MOHELA representatives insisted that the borrowers would have to resume repayment as of October 1, 2023, even after the borrowers explained to MOHELA that they were settlement class members.”
“We are sounding an alarm because our clients, who prevailed after years of legal battle, are being wrongly swept into repayment,” said Eileen Connor, President and Director of the Project on Predatory Student Lending, in a statement.
The Project suggested that the organization could pursue legal action against MOHELA if the collections efforts continued. “Importantly, the settlement agreement states that borrowers may take legal action if there is involuntary collection on their loans,” the organization warned in its statement.
“The law is clear,” said Connor. “If MOHELA collects a single cent on a loan that should be in forbearance, there will be consequences. It’s unsettling that borrowers are in the lurch, while the Department of Education and its servicers cannot get on the same page.”
Latest Issue Plaguing Borrowers Seeking Student Loan Forgiveness And Affordable Payments
The dust-up between MOHELA and the Project on Predatory Student Lending is just the latest example of problems borrowers are facing amid the unprecedented return to repayment. After the student loan pause ended in August, over 40 million borrowers are resuming repayment, while the Biden administration rolls out new student loan forgiveness initiatives and a new, more affordable income-driven repayment plan.
But borrowers are reporting widespread problems including extremely long call hold times when trying to reach their loan servicers, as well as misinformation and processing errors. Earlier this month, the Consumer Financial Protection Bureau — a federal watchdog agency overseeing the financial services sector — warned student loan servicers that it is monitoring the situation.
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