A federal appeals court has cleared the way for approximately 450,000 student loan borrowers to receive debt relief after years of legal battles over a federal protection designed to help those defrauded by their colleges. The ruling, issued on July 17 in the case Sweet v. McMahon, resolves a class-action lawsuit that has spanned three presidential administrations and will deliver more than $23 billion in total relief, according to the Project on Predatory Student Lending.
The case centers on the borrower defense rule, a federal provision that allows borrowers to petition the U.S. Education Department to erase their debts if a school has lied to them about job prospects, credit transferability, salary expectations after graduation, or other material facts. Borrowers who attended predetermined lists of mostly for-profit colleges can qualify for automatic relief under the settlement.
The lawsuit, originally filed against the Trump administration in 2019, took its name from the sitting education secretary at each stage: Sweet v. DeVos, then Sweet v. Cardona during the Biden administration, and now Sweet v. McMahon under Trump’s current education secretary, Linda McMahon. The prolonged legal fight reflects years of delays in processing borrower defense claims.
In 2022, the Biden administration agreed to a landmark settlement pledging that borrowers from over 150 for-profit colleges would receive automatic loan relief. The agreement also allowed more than 250,000 additional borrowers to apply during a post-settlement period in 2022, with the Education Department required to review those applications within a set deadline or automatically discharge the loans. However, court documents revealed that the Trump administration had processed only 60,000 of those post-class applications by the court-appointed deadline, triggering the latest phase of relief.
The Education Department had argued it needed 18 months to properly review the large volume of applications, saying it wanted to ensure “taxpayer funds are only disbursed to those borrowers who are entitled to relief on the merits.” But the U.S. Court of Appeals for the 9th Circuit rejected that request, noting that the settlement obligations were clear from the start and the department had waited three years before raising objections.
Eileen Connor, executive director of the Project on Predatory Student Lending, which filed the original 2019 lawsuit, said the settlement represents the largest recovery ever against the U.S. government. “At the end of the day, this settlement has impacted over 450,000 people, and it’s improved their personal balance sheets by over $23 billion,” Connor said. Once all discharges and refunds are completed, the Sweet settlement will exceed the combined tobacco settlements of 1998.
The relief comes as a precedent for how courts can enforce borrower protections. When the Biden administration announced in June 2022 that it would automatically discharge all remaining federal student loans for former Corinthian Colleges students—a for-profit chain that collapsed—it affected 560,000 borrowers and erased $5.8 billion in debt. That settlement, while substantial, was narrower in scope than the Sweet case, which encompasses borrowers from over 150 institutions.
Individual borrowers eligible for relief under Sweet will see substantial benefit. The average federal student loan balance cleared under the settlement exceeded $48,000, according to Connor. Borrowers may also qualify for refunds of previous payments, with the typical refund exceeding $15,000. The Education Department must complete all discharges and refunds by June 15, 2027. Borrowers are not required to make payments while waiting for their relief to be processed.
Borrowers eligible for the settlement are those who had a claim pending with the Education Department in November 2022 or whose applications were denied between December 2019 and October 2020. Eligibility depends on which school a borrower attended and when they submitted their borrower defense application. The settlement only applies to federal student loans; private loans do not qualify for borrower defense protections.
Sources
- NPR — reporting on the Sweet v. McMahon settlement, borrower defense rule mechanics, the history of the case across three administrations, and borrower testimonies
- CNBC — details on the 450,000 borrowers, $23 billion settlement amount, the court’s July 17 ruling, and Education Department arguments
- Project on Predatory Student Lending — statements on settlement impact, average loan balances, and refund amounts
