In a historic settlement agreement reached by the Biden administration on Thursday, September 21, 2023, at least $6 billion in student loans is set to be forgiven for hundreds of thousands of borrowers. However, allegations of violations from a major student loan servicer have cast a shadow over the agreement.

The settlement, approved by the Supreme Court last spring, resolved Sweet v. Cardona, a class-action lawsuit initiated against the Trump administration by student loan borrowers. The lawsuit was filed over delayed or rejected applications for the Borrower Defense to Repayment program. This program allows students to apply for loan forgiveness if they can prove their school engaged in deceptive practices.

As part of the settlement, the Education Department committed to forgive $6 billion in student loans for over 200,000 applicants who attended an institution from an approved list of schools. Additional relief measures include refunds of past payments and corrections to damaged credit reports. The department also pledged to expedite processing for other borrowers applying for the Borrower Defense program.

Since its implementation earlier this year, federal student loan debt discharge has been initiated for at least 128,000 class members, according to the Project on Predatory Student Lending, the legal group representing the borrowers.

However, controversy arose when MOHELA, a major Education Department loan servicer, was accused by the Project on Predatory Student Lending of violating the terms of the Sweet v. Cardona settlement. MOHELA allegedly informed class members that they must resume loan repayments in October, contrary to the settlement agreement which states that approved borrowers should not be required to make payments while their loans are being discharged.

The Project on Predatory Student Lending raised concerns about this issue in a letter sent to MOHELA, warning that legal action could be pursued if the collections efforts continued.

This incident with MOHELA forms part of a wider issue as student loan payments resumed following the student loan pause last month. Over 40 million borrowers are now resuming repayment, amidst numerous reported problems including long call hold times and misinformation from loan servicers. The Consumer Financial Protection Bureau, a federal agency overseeing the financial services sector, has warned student loan servicers that it is monitoring the situation closely.

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