Court Clears Way for $11 Billion in Student Loan Forgiveness for Over 170,000 Defrauded Borrowers

More than 170,000 borrowers are set to have roughly $11 billion in federal student loan debt erased after a federal appeals court rejected the Education Department's latest attempt to delay a yearslong class-action settlement, clearing the way for one of the largest debt relief actions in U.S. history to move forward.

The decision, handed down July 17, upholds the settlement schedule in Sweet v. DeVos, a borrower-defense class action originally filed in 2019. The case is now expected to result in at least $23 billion in total federal student loan relief for approximately 500,000 borrowers, according to the Project on Predatory Student Lending, the organization that brought the case on behalf of plaintiffs.

A yearslong fight over broken promises

The lawsuit centers on students who say they were misled or defrauded by predatory for-profit schools and subsequently applied for relief under the federal Borrower Defense rule, which allows borrowers to have their loans forgiven if their school engaged in fraud or other misconduct. Nine original plaintiffs, including Theresa Sweet, a California woman who attended the Brooks Institute of Photography, sued the Education Department — then led by Betsy DeVos — alleging the agency had failed to cancel debts that met the criteria for relief.

In their original 2019 court filing, the borrowers argued that the schools "actually delivered worthless products that left students with thousands of dollars in debt, damaged credit, and depleted access to further student aid." The plaintiffs also alleged that beginning in January 2017, the Education Department began ignoring what they described as a growing backlog of borrower defense claims, reducing its capacity to process them while redirecting resources toward undoing work from the prior administration.

The consequences for borrowers awaiting decisions were often severe. According to the case, many were unable to secure jobs they believed they qualified for and could not obtain loans to buy homes or cars while their claims remained unresolved. One student told the court her loan balance had grown from about $250,000 to more than $400,000 while she waited for a borrower defense application accepted in June 2022 to be resolved.

A settlement repeatedly delayed

The Biden administration reached a settlement in the case in 2022, but according to the Project on Predatory Student Lending, the Trump administration has continued to delay providing relief to borrowers in the years since. The Education Department's most recent attempt sought to postpone the settlement's relief schedule by 18 months — a request the federal appeals court rejected in its July 17 ruling.

That ruling means roughly $11 billion in loans are now set to be forgiven for more than 170,000 borrowers who did not receive timely decisions on their borrower defense applications, Eileen Connor, president and executive director of the Project on Predatory Student Lending, told USA Today.

'The largest settlement ever reached against the federal government'

Connor described the scale of the settlement in stark terms. "In terms of monetary relief provided, Sweet is the largest class-action settlement in American history and the largest settlement ever reached against the federal government," she told USA Today. "It is also among the largest settlements of any kind in the U.S."

Connor also framed the court's decision as a broader statement about government accountability. "It forced the federal government to act on roughly half a million long-neglected claims and entitled the overwhelming majority of those borrowers to full settlement relief — including cancellation of debt they should never have owed, corrected credit reports, and, where applicable, refunds of payments they had already made," she said. "It also made clear that the federal government cannot simply disregard borrowers' rights and its own legal obligations without consequence."

Relief already delivered — and what's still owed

The original 2022 settlement has already resulted in $6 billion in federal student loan debt relief for roughly 300,000 borrowers. But the case's reach expanded significantly during years of continued litigation, as a backlog of more than 210,000 additional borrower defense applications built up while the legal battle played out, according to the Project on Predatory Student Lending. That backlog is now largely responsible for pushing the total number of affected borrowers toward 500,000.

A community shaped by years of waiting

For plaintiffs like Sweet, the settlement represents the resolution of a fight that stretched across two presidential administrations. "This case was always about borrowers coming together to stand up for what was right," Sweet said in a July 23 news release. "Through the ups and downs of the last seven years, we became a community united by the belief that what happened to us was wrong, and it became clear just how many people had been harmed by the same broken system."

What borrowers need to know

New applicants seeking borrower defense relief are not eligible for this particular settlement, which applies specifically to the roughly 170,000 borrowers who filed applications in 2022 and did not receive timely decisions. The Education Department's final deadline to clear these borrowers' loan debts is June 15, 2027, and affected borrowers are not required to make payments while they wait for forgiveness to take effect.

Connor told CNBC that the average federal student loan balance forgiven under the settlement exceeded $48,000, though she cautioned that individual amounts vary widely, with many borrowers receiving substantially more or less than that average.

Despite the court's ruling, some members of the original plaintiff class have reported waiting as long as a year and a half for relief to materialize, prompting the Project on Predatory Student Lending to send the Education and Justice departments a formal notice alleging a material breach of the settlement. Borrowers seeking more information about the settlement and the relief process can visit the Project on Predatory Student Lending's website.