U.S. student loan settlement clears debt for 450,000 borrowers

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U.S. student loan settlement

Highlights

A federal appeals court in July enabled nearly 200,000 more borrowers to receive loan cancellation under the $23 billion Sweet settlement.
The settlement, involving over 450,000 borrowers, erases an average federal student loan balance exceeding $48,000 and may refund over $15,000 per borrower.
The Department of Education must discharge eligible debt by June 15, 2027, and payments are paused for qualifying borrowers awaiting relief.

Court ruling advances settlement relief

As first reported by CNBC, a federal appeals court in late July denied Trump officials’ latest request to delay decisions on a large group of Borrower Defense applications, allowing nearly 200,000 more borrowers to move toward loan cancellation under the $23 billion settlement.

The case spans three presidential administrations, shifting from Sweet v. DeVos to Sweet v. Cardona and now Sweet v. McMahon. Borrowers in the lawsuit argue that their schools made major misrepresentations and that the Trump administration delayed relief they were entitled to under the federal Borrower Defense program.

Eileen Connor, president and director of The Project on Predatory Student Lending, says the decision shows the federal government cannot ignore borrowers’ rights and legal obligations without consequence. She says dozens of schools were implicated in the settlement, many of them shuttered for-profit institutions, after evidence of institutional misconduct.

Connor says some borrowers were promised stable careers, higher earnings and transferable credits but instead were left with large debts, weak job prospects, nontransferable credits and, in some cases, no degree at all. She adds that some borrowers were denied mortgages and car financing, while others delayed family plans or medical care because of their federal debt burdens.

Eligibility, balances and borrower impact

Eligibility under the Sweet settlement depends on the school a borrower attended and when the borrower filed a Borrower Defense application, Connor says. She says borrowers cannot newly qualify today, but those with claims pending at the Education Department in November 2022 may be part of the settlement class, along with certain borrowers whose applications were denied between December 2019 and October 2020.

The settlement applies only to federal student loans. Higher education expert Mark Kantrowitz says private student loans are not eligible for Borrower Defense relief, although nearly two dozen states maintain tuition recovery fund programs for students who attended closed for-profit schools.

The average federal student loan balance erased under the settlement exceeds $48,000, according to Connor, though individual amounts vary widely. Borrowers who qualify may also receive refunds for prior payments, with the typical refund exceeding $15,000.

The timing of relief depends on each borrower’s case and application date. Under the settlement terms, the Education Department has until June 15, 2027 to clear eligible debt, and borrowers are not required to make payments while they wait for forgiveness.

Our earlier article covered the Justice Department’s expanded anti-fraud enforcement push across seven Southeastern states, detailing 17 cases tied to more than $350 million in intended losses. It also outlined the creation of new federal-state task forces and cooperation agreements designed to speed detection and prosecution of fraud involving benefits, loans and tax-related schemes.

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