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Dive Brief: 

  • The Project on Predatory Student Lending alleged this week that a major federal student loan servicer is violating the terms of the landmark Sweet v. Cardona settlement, which will clear $6 billion in debt from borrowers who say their colleges defrauded them. 
  • Under the 2022 agreement, the U.S. Department of Education agreed to wipe away the debts of more than 200,000 borrowers who say their colleges misled them. The deal also calls for keeping their loans in forbearance until they’re discharged. 
  • However, the Missouri Higher Education Loan Authority, a federal loan servicer known as MOHELA, recently told some borrowers they would soon have to make payments on their loans anyway, said the PPSL, which represents the class members. 

Dive Insight: 

Last November, a federal judge approved the $6 billion Sweet v. Cardona settlement, paving the way to end a yearslong legal battle between the Education Department and borrowers who said the agency mishandled their claims under the borrower defense program, which grants debt relief to students who’ve been defrauded by their colleges. 

But the settlement agreement has run into snags. 

In February, the federal district judge who oversaw the case temporarily blocked relief for borrowers who attended a handful of institutions that appealed the settlement — nonprofit Everglades College, for-profit American National University and for-profit college owner Lincoln Educational Services Corp. A couple of months later, however, the 9th U.S. Circuit Court of Appeals allowed all discharges to proceed, though the appeal is still pending

Now, class members are being “wrongly swept into repayment,” Eileen Connor, PPSL’s president and director, said in a statement. 

As of Aug. 28, the Education Department had instructed loan servicers to discharge the debt of over 128,000 class members, according to the legal group. 

Yet MOHELA has told some class members that they will be expected to resume student loan payments in October, according to PPSL. Some borrowers have also received conflicting information about the status of their loans from the Education Department and MOHELA. 

“It’s unsettling that borrowers are in the lurch, while the Department of Education and its servicers cannot get on the same page,” Connor said. 

Representatives of MOHELA and the Education Department did not immediately respond to a request for comment Thursday. 

PPSL sent a letter this week demanding MOHELA comply with the settlement agreement by holding class members’ loans in forbearance. The agreement states that borrowers can take legal action if they face involuntary collection on their loans, the group pointed out. 

“The law is clear: if MOHELA collects a single cent on a loan that should be in forbearance, there will be consequences,” Connor said.