260,000 student-loan borrowers who were approved for debt relief might be pushed back into repayment anyway, a legacy advocacy group says

  • Student-loan borrowers who were part of a 2022 settlement are still waiting for their relief to be processed.

  • A legal advocacy group said a student-loan company is not carrying out the settlement terms correctly.

  • It said some borrowers within the settlement were told they have to resume payments in October.

It's been nearly a year since thousands of defrauded student-loan borrowers were granted debt relief in court. They're still waiting for it to process — and might have to enter repayment because of it.

In November 2022, a federal judge granted final approval of a lawsuit — Sweet v. Cardona — which was originally filed in 2019 by student-loan borrowers who accused the Education Department of failing to process their claims that they were defrauded by their school. Those claims are known as the borrower defense to repayment — a borrower can submit a claim alleging they were defrauded, and if approved, their debt would be discharged.

Since the lawsuit was not finalized under former President Donald Trump's Education Department, President Joe Biden's took it on and agreed to a settlement that would give 260,000 borrowers $6 billion relief. However, it is taking time to process that relief — and the Project on Predatory Student Lending, which filed the lawsuit on the borrowers' behalf, said it's concerned that student-loan company MOHELA is not implementing the settlement terms correctly.

The group wrote in a letter to MOHELA's CEO Scott Giles that some borrowers who qualify for relief have been told they have to reenter repayment in October, even though the Education Department instructed servicers to place those borrowers on forbearance until their relief is processed.

"Borrower 3, a resident of New York, received a notice from the Department on February 28, 2023, stating that his Relevant Loan Debt would be cancelled under the settlement in Sweet v. Cardona," the group wrote in its letter. "He received another email from the Department in August 2023 confirming that no payment would be due while he waited for relief. Yet MOHELA recently placed Borrower 3's loans into repayment status, and his account shows that he owes over $600."

The group said that forcing borrowers with pending borrower defense claims back into repayment "violates the court-approved Settlement Agreement and applicable regulations." It requested that MOHELA work with the Education Department to ensure it has a clear list of borrowers who qualified for relief under the settlement, that all of those borrowers are placed on forbearance, and that MOHELA informs those borrowers that they have no obligation to make any payments next month.

The Consumer Financial Protection Bureau told Insider that while it cannot comment on any non-public enforcement work, it has previously identified incidents where servicers may have been violating consumer protection law. For example, the agency has found servicers attempting to collect on debt previously discharged, and it has also monitored complaints regarding predatory behavior at for-profit schools.

The federal pause on student-loan payment ended on September 1 when interest began accruing again on borrowers' balances. Their first bills will be due starting in October, and given the unprecedented nature of the transition of millions of borrowers back into repayment, advocacy groups and lawmakers on both sides of the aisle have expressed concerns with servicers' preparation.

GOP Rep. Virginia Foxx and Sen. Bill Cassidy — top Republicans on the House and Senate education committees, respectively — requested that the Government Accountability Office investigate guidance the Education Department has given servicers to prepare for repayment. "Student loan servicers will be responsible for helping millions of borrowers return to repayment, yet it is unclear whether the Department has provided servicers with the necessary guidance and instruction they need to assist borrowers," they said.

A group of six Democratic senators, led by New Jersey Sen. Bob Menendez, have taken on the issue, as well. On Thursday, they sent a letter to Education Secretary Miguel Cardona expressing concerns with MOHELA's delays in processing paperwork for borrowers who qualify for Public Service Loan Forgiveness.

"Borrowers who are eligible to have their debt cancelled under the PSLF program should not be forced back into repayment due solely to MOHELA's processing delays, which cause difficult financial situations for so many borrowers," they said.

The Education Department previously told Insider it remains in close contact with servicers as they prepare to facilitate repayment, but it's clear the process is not as smooth as intended due to the roadblocks many borrowers are already finding themselves in.

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