A federal appeals court has cleared the way for approximately 170,000 student loan borrowers to receive automatic debt cancellation after rejecting the Department of Education’s attempt to postpone its obligations under a landmark settlement. The ruling requires the department to comply with existing deadlines for post-class applicants who were defrauded by their schools and applied for relief in 2022.
The decision marks a significant victory for borrowers who have spent years waiting for the government to process their claims. While the Department of Education argued that processing these claims would create significant administrative and financial challenges, a federal appeals court rejected the request for more time, leaving the settlement’s consequences in place.
The $23 Billion Sweet v. McMahon Settlement
The legal battle began in 2017 when borrowers sued the Department of Education, alleging the agency unlawfully delayed or denied applications for the Borrower Defense to Repayment program. This program allows the government to wipe out federal debt for students whose schools misled them regarding program costs, career prospects, or accreditation. The resulting settlement, reached in 2022 under the Biden administration, has delivered or promised approximately $23 billion in relief to more than 500,000 people.
The Project on Predatory Student Lending, via Business Insider described it as the largest class-action settlement in American history.
Relief under this agreement isn’t limited to simple loan forgiveness. Qualifying borrowers are also entitled to refunds of previous payments and the correction of negative credit reporting associated with the discharged debt. The settlement primarily targeted Exhibit C schools, which were predominantly for-profit institutions.
Automatic Relief for Post-Class Applicants
The latest court ruling specifically impacts post-class applicants—borrowers who submitted their claims during a five-month window between June 23 and November 15, 2022. Unlike the original class members, these applicants weren’t guaranteed automatic relief; instead, the department had three years from the agreement’s effective date to make a determination on their eligibility.
Because the department missed those deadlines, these borrowers are now entitled to full settlement relief automatically.
The Project on Predatory Student Lending (PPSL), the legal organization that has represented federal student loan borrowers in the Sweet v. McMahon litigation for nearly a decade, noted that some borrowers have already seen their balances fluctuate, which typically indicates that loan servicers are processing the discharge.
In a Thursday press release, Eileen Connor, president and executive director of PPSL, stated: The work isn’t over: To anyone out there struggling with predatory student debt, we see you… And to anyone out there looking to exploit students, we see you too.
PPSL further advised borrowers in a statement on X on Friday to check all inboxes and spam/junk folders for messages from [email protected], and to make sure their contact information is up to date in their Federal Student Aid account. The organization noted that some post-class applicants who attended a non-Exhibit C school and are entitled to full settlement relief have started receiving notices from @usedgov.
Upcoming July 1 Repayment Shifts
While the Sweet v.
For those not covered by the Sweet settlement, borrower defense remains an option for those who can prove a school misrepresented information regarding employment rates, accreditation, or costs. However, these claims are evaluated individually and do not benefit from the automatic relief triggered by the recent court ruling. Furthermore, advocacy groups have filed lawsuits against the department challenging the new borrowing caps for advanced degrees.
The primary remaining uncertainty for affected borrowers is the timing of the actual discharge. While the department had until June 15 to send notices to the final group of post-class applicants, the actual removal of debt from accounts often depends on the efficiency of the individual loan servicer.
