Sweet v. Cardona

Background

The plaintiffs brought a class action under the Higher Education Act and the Administrative Procedure Act. They alleged that the Department of Education unlawfully delayed deciding “borrower defense” claims, which can seek relief from federal student-loan debt based on alleged wrongdoing by schools. The plaintiffs filed their own claims and sued to require the Department to resume deciding applications.

The court had certified a nationwide class of borrower-defense claimants whose claims were still awaiting decisions and who were not already members of an earlier related proceeding. The parties’ cross-motions for summary judgment had been fully briefed but had not yet been decided. They later negotiated a proposed class settlement with the assistance of Magistrate Judge Donna M. Ryu.

Proposed Settlement

The settlement provides a schedule for deciding pending claims and for sending notices and providing relief on claims that had already been decided but for which notice had not yet been sent. While a class member’s claim remains pending, the Department, its agents, and its contractors will not collect the debt and will provide a credit for accrued interest.

The proposal includes enforcement measures. Each month of delay in deciding a claim, sending notice, or providing relief would discharge 30 percent of the relevant debt, prorated by day. Improper debt collection would result in an 80 percent discharge. The Department would also provide an initial report on the class and periodic reports about decisions, relief, schools subject to borrower-defense findings, and applications involving schools that are the subject of at least 100 applications. A late periodic report would trigger monthly reporting thereafter.

The plaintiffs would waive money-damages claims and other potential claims arising from the Department’s delay. The settlement would not compromise the substance of class members’ borrower-defense claims, and class members would retain the right to challenge the Department’s final disposition of their claims. The proposal did not include a fee award; the court left that issue to its discretion.

Analysis and Ruling

Under Federal Rule of Civil Procedure 23(e), a settlement that binds absent class members must be fair, reasonable, and adequate. The court found the proposed settlement adequate at the preliminary stage because it provided a process for resolving pending claims, meaningful enforcement provisions, a sufficiently narrow waiver, and evidence of serious, non-collusive negotiations.

The court also found the proposed notice adequate. Notice would be sent by first-class mail to all borrowers and by email to borrowers whose email addresses the Department had. It would also be posted on StudentAid.gov, class counsel’s website, and through legal-aid groups around the country.

Judge William Alsup granted preliminary approval, subject to final approval. He ordered the parties to distribute class notice as described and directed them to jointly inform the court of a reasonable notice-distribution deadline. The court stated that it would then issue an order setting the final-approval fairness hearing and related deadlines. The opinion did not decide the pending summary-judgment motions or the merits of the borrowers’ underlying claims.