The recent Sweet v. Cardona case and resulting proposed settlement between student borrowers and the Department of Education has raised crucial questions regarding transparency, due process, and the appropriate use of executive authority in administratively canceling student debt. This policy brief provides background on the case, summarizes concerns from opponents of the settlement terms, includes viewpoints from both advocates and critics, and analyzes the potential impacts.
Background on Borrower Defense and the Sweet v. Cardona Case
The Department of Education‘s "borrower defense to repayment" (BD) program permits federal student loan borrowers to submit claims for debt cancellation if their school is found to have engaged in certain kinds of misconduct or fraud. Common allegations made by borrowers include that school advertising misrepresented job placement success rates, credentials of faculty, or overall career prospects in order to induce enrollment.
However, despite over 200,000 claims pending, the BD program has failed to provide substantial relief to victims of academy wrongdoing. From 2015-2020, under both the Obama and Trump administrations, only an average of 13% of processed BD applications were approved, with most either denied or stuck in limbo.
Seeking to compel action on their relief claims, a group of BD applicants sued the Department in 2019 in Sweet v. Cardona (formerly Sweet v. DeVos under the Trump administration). The lawsuit contended that the Department‘s Office of Federal Student Aid had essentially ceased adjudicating borrower defense cases, leaving defrauded students stranded with debt.
After an initial settlement proposal was rejected in 2020, the Biden administration resumed negotiations with plaintiffs and submitted a new proposed agreement in April 2022. The settlement terms would create a revised system to facilitate loan cancellation review, including:
- Placing schools into specified Groups A and B lists, with borrowers attending Group A schools automatically receiving 100% loan discharges;
- Establishing a "Closed School Discharge" program providing automatic relief if schools closed prior to borrowers completing programs;
- Refunding payments already made on discharged loan amounts.
Projected Costs and Transparency Concerns
A major criticism raised against the Sweet v. Cardona settlement is its lack of transparency around projected costs. The agreement would implement an essentially no-questions-asked loan cancellation process for potentially hundreds of thousands of borrowers who attended schools listed as part of Group A.
Combined with closed school discharges, total relief provided could significantly impact the federal budget. Yet the Department of Education has refused public and Congressional requests to disclose its internal cost estimates. In June 2022, Secretary Cardona confirmed to a Senate committee, "we have provided the dollar amounts associated with this settlement to the plaintiffs’ counsel," but would not share the data more widely due to the pending legal status.
Without public accounting, policy experts have estimated the expanded BD program could cost from $15 billion up to over $20 billion. On an annualized basis, discharges may match or exceed the yearly budget of the entire Pell Grant program. This lack of transparency reduces public accountability and makes the ultimate expense unclear. Taxpayers are left in the dark on who will pay.
Calls for Reform Over Due Process Concerns
Further questions relate to whether the Group A approach violates standards of due process for accused institutions or student borrowers themselves. Conservative policy analysts like Cato‘s Neal McCluskey argue automatically and universally discharging loans solely based on the school attended is an inherently unfair model:
"It creates an expectation that the department is supposed to be adjudicating every claim individually to see not just whether a school misled the borrower but whether this particular borrower was actually misled…Instead we’re seeing kind of a compromise to make this easy, rather than correct."
Under the settlement terms, specific allegations of wrongdoing against a Group B school can also lead it to be reclassified to Group A in the future. However, institutions may lack sufficient notice or ability to contest their inclusion on the lists. And the relaxed standards absolve borrowers making potential frivolous BD claims.
Reform proposals include creating an independent BD claims review board, similar to the Vaccine Injury Compensation Program. But at present, the Group A framework represents a blunt tool. While surely helping some victims, it also treats many borrowers and schools unequally relative to other discharge programs including rigorous individual vetting. Should achieving policy aims override process values?
Worries Over Executive Authority and Agency Overreach
Critics additionally contend that the Department of Education is overstepping appropriate executive branch powers by creating entire new BD relief qualification categories via legal settlement, as opposed to formal regulation or legislation. Senator Richard Burr argues the agency is "abusing the rulemaking process by negotiating closed-door deals…”
Taxonomy expansions in Group A may ultimately prove sufficiently aligned with the original 1990s borrower defense statute text. But to opponents, the informal nature of adding key schools like ITT Technical Institute without standard public input crosses customary boundaries. Such unilateral additions hold implications for separation of powers and the Appropriations Clause by potentially mandating significant new taxpayer expenditures absent explicit congressional approval.
Insufficient limits could also set worrying precedent of future Secretaries of various ideologies fashioning desired policy through litigation settlements. Left-leaning advocacy groups in fact celebrated the settlement as a backdoor mechanism to achieve debt cancellation should Biden’s one-time cancellation plan be struck down in court. Does this signal virtue or vice?
“This is not the way government policymaking is supposed to work…what happens when another administration comes in and wants to undo this?” said higher education analyst Terry Hartle.
Perspectives Across the Debate
Advocates counter that defrauded students deserve efficient relief after years of agency delays and previous poor BD claim approval rates: "This settlement is changing borrowers‘ lives. It‘s helping people recover from deception,” said Student Defense attorney Dan Zibel. Critics suggest focusing reforms on the existing process instead.
Some analysts contend borrowers warrant benefit-of-the-doubt on claims given past institutional abuses. And implicitly acknowledging deficiencies via settlement could limit federal liability if similar cases proceed to open trial. But others maintain equal standards should apply across discharge programs, without special preference for one constituency over others.
Veteran education lawyer Wayne Johnson contends BD settlement renegotiations highlight the need for an independent claims adjudication body as exists in other complex administrative regimes. However, finding the perfect balance remains challenging. The current terms attempt to balance complexity in the system with the need for equitable relief.
Potential Impacts and Future Analysis
In total, the Sweet v. Cardona settlement provides channels for expanding relief to victims of certain school misconduct. But it opens significant tensions around transparency, process integrity, and separation of powers. Key questions center on whether achieving sound policy objectives here overrides concerns on underlying approach precedents being established.
With litigation ongoing, the exact trajectory remains uncertain. The forthcoming formal proposed regulation will shed more light on extent of public input opportunities. Meanwhile the Ninth Circuit Court of Appeals will eventually rule on settlement validity.
Looking ahead, plenty of thorny legal analysis is likely as attempts persist to balance policy relief aims with maintaining structural bounds on administrative power. How these issues resolve carries ramification for higher education governance for years ahead.