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$6 billion student loan forgiveness: whose student debt will be cancelled?

The Biden administration has struck a deal to cancel debt for roughly 200,000 borrowers involved in a class-action lawsuit against fraudulent colleges.

Update:
Financial aid for public and private universities
STEFANI REYNOLDSGetty

The Biden administration has agreed a deal which would provide a further $6 billion in student loan forgiveness, benefitting an estimated 200,000 borrowers as part of an ongoing class-action lawsuit.

The group of borrowers contend that they were defrauded by a number of colleges who did not provide the education that they had advertised. It is part of a rule known as the borrower defence to repayment, which allows students who were misled by colleges to claim financial relief.

Often these claims relate to exaggerated job placement rates or the ability to transfer credits. The decision still has to be ratified by a judge but, given that the deal would represent a complete debt write-off for the majority of those involved, no opposition is expected.

Who will get the new student loan forgiveness?

The agreement put forward by the White House would allow borrowers involved in a lawsuit against one of 50 colleges to get a substantial amount of debt forgiveness. Most of the colleges involved in the action are for-profit institutions, and recipients of the forgiveness must have already added their name to the claim.

Borrowers benefitting from this agreement will also get a refund of any payments already made, in what could prove to be a very lucrative payday. Of the group receiving the forgiveness, around 74,000 were also part of a lawsuit launched during the Trump administration which was blocked.

The lawsuit was brought by the Harvard Law School’s Project on Predatory Student Lending and its director Eileen Connor called the settlement a “momentous” decision for borrowers.

She said she hoped the agreement would “deliver answers and certainty to borrowers who have fought long and hard for a fair resolution of their borrower defense claims after being cheated by their schools and ignored or even rejected by their government.”

Will there be more student loan forgiveness from Biden?

This latest wave of student loan forgiveness brings the total written off under President Biden to $25 billion, benefitting some 1.3 million borrowers. However the United States has 43 million people with outstanding student loan debt so this is far from the end of calls for loan forgiveness.

On the campaign trail Biden indicated that he would be willing to support $10,000 of forgiveness for student loan borrowers. However White House officials have since said that an income threshold is being considered, to prevent high-income borrowers from getting the relief.

The current pandemic-induced pause on student loan payments is set to end on 31 August. As that deadline approaches it is likely that talk of student debt forgiveness will become increasingly loud in Washington DC.

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