California Judge Threatens to Hold Student Loan Servicers in Contempt

In 2019, a group of former for-profit college students brought a class action against the Department of Education, based on the agency’s failure to rule on their applications for borrower defense relief to their loans–or anyone else’s–for more than a year.

After years of litigation, the parties reached a settlement, which was approved in November 2022.  Several for-profit schools objected to the settlement, and appealed the approval of the settlement. The district court. 9th Circuit and the Supreme Court denied requests to stay the settlement, though, which went into effect in January 2023.

Under the terms of the settlement, some borrowers were entitled to to “automatic” relief — i.e., discharge of their outstanding loan obligations without further action or inquiry by the Department–by January 2024. According to a motion to enforce filed by the plaintiffs yesterday, though, that relief hasn’t been granted yet to nearly a third of the 195,000 members of that group. The Department has  conceded it is in violation of the Settlement Agreement, but suggested that the issues were due to “details” with loan servicers.

Last night, the district judge overseeing the case issued an order requiring the Department to :

promptly notify their loan servicers whom they blame for delay that they are ordered to appear at the hearing on April 24, 2024, at 8:00 A.M., and show cause why they should not be held in contempt for frustrating the settlement and the final settlement approval order of the United States District Court.

To be continued….

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