Student Loans Erased for 450,000 Defrauded Borrowers

The U.S. Education Department is erasing federal student loan debt for roughly 450,000 borrowers who said they were misled or defrauded by their colleges — the endgame of a class-action lawsuit that has spanned three presidential administrations. The relief, worth more than $23 billion, was set in motion by a federal appeals court ruling that rejected the Trump administration’s latest attempt to delay the landmark Sweet v. McMahon settlement, as NPR reported.

A Seven-Year Battle Over Borrower Defense

The fight began in 2019, when seven named plaintiffs sued then-Education Secretary Betsy DeVos in the U.S. District Court for the Northern District of California. They argued that the department had deliberately and illegally stalled thousands of claims under the federal borrower defense rule, which allows students to seek discharge of their federal loans if a school lied to them — about job prospects, the transferability of credits, or the salaries they could expect after graduation.

The lawsuit centered on students who said they were ripped off by predatory institutions, many of them for-profit colleges such as ITT Technical Institute, Corinthian Colleges, the University of Phoenix, and the Art Institutes. The case was pursued by the Project on Predatory Student Lending (PPSL), a legal advocacy group that has become the leading challenger of abusive for-profit schools.

In 2022, the Biden administration agreed to a landmark settlement. Borrowers who had attended more than 150 schools on a predetermined list — institutions where federal officials found strong evidence of misconduct — would receive full and automatic loan discharges. The agreement also created a “post-class” of more than 250,000 borrowers who applied for relief between June 23 and November 16, 2022; the department was required to decide those applications by court-enforceable deadlines or automatically discharge the loans.

Courts Reject Repeated Delays

The second Trump administration quickly fell behind. In court documents, the department revealed it had processed only 60,000 post-class applications by the January 2026 deadline and asked for 18 additional months to finish the rest, warning of a possible “substantial windfall at taxpayer expense.” Forbes reported that the ruling marked the department’s latest loss in the long-running saga.

In April, the department disclosed in court filings that it had already provided about $12 billion in discharges and refunds to nearly 300,000 borrowers. On July 17, a unanimous three-judge panel of the 9th U.S. Circuit Court of Appeals rejected the department’s appeal, finding no “changed circumstances” to justify modifying the settlement. The ruling required the department to deliver relief to more than 170,000 additional post-class borrowers who had not received timely decisions.

Education Department spokesperson Ellen Keast defended the agency’s handling of the case, saying the settlement “imposed an unrealistic deadline” and that the department had “complied in good faith with court orders.”

’I’m Really Angry About All the Years’

For borrowers like Jessica Feindt, the relief is overdue. Feindt, a University of Phoenix graduate who lives near Flint, Michigan, was one of the first in her family to attend college. She took out federal loans to earn a psychology degree, but later learned that a recruitment counselor had misled her — including about whether her degree would be accepted by Michigan graduate programs. It wasn’t.

“They really marketed heavily in the area. It was on every radio station, every newspaper. It was everywhere,” Feindt said.

Less than a week after the appeals court ruling, Feindt logged in to her federal student loan account and found her debts erased. “I feel like I should be happy, but I’m really angry about all the years that my family suffered under these loans,” she said.

According to CNBC, the average federal student loan balance cleared under the settlement exceeded $48,000, and borrowers eligible for refunds of past payments received roughly $15,000 on average.

The Largest Settlement in U.S. History

PPSL announced on July 23 that Sweet v. McMahon — the case now carries the name of Education Secretary Linda McMahon, its third Cabinet defendant — had become the largest-ever settlement against the U.S. government and the largest class-action settlement in American history, totaling at least $23 billion in relief for more than 500,000 borrowers.

“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,” said Eileen Connor, PPSL’s president and executive director.

Connor has compared predatory student lending to the tobacco industry, calling the loans “toxic products.” Over the past decade, PPSL has secured $50 billion in cancellation of fraudulent student debt overall, including for borrowers at ITT Technical Institute, Corinthian Colleges, University of Phoenix, and the Art Institutes.

Yet the work is not finished. PPSL says more than 1,000 members of the Sweet class are still waiting for relief that was due six months to two years ago, and a separate backlog of more than 210,000 borrower defense applications has grown as the department fought implementation.

What to Watch

Under the settlement’s terms, the latest the Education Department can clear an eligible borrower’s debt is June 15, 2027. Borrowers do not need to make payments while they wait for discharges. Courts at every level — including the Supreme Court — have upheld the settlement, leaving the department little room to delay further.

The case also stands alongside the 1998 tobacco settlements, the 2021 opioid accords, and the 2012 National Mortgage Settlement as one of the largest consumer settlements in U.S. history. For the hundreds of thousands of borrowers now seeing their balances drop to zero, the long wait is finally over.