Court clears path for $23 billion in student loan forgiveness after Education Department appeal fails
Thousands of federal student loan borrowers are finally set to receive long-awaited debt relief after a federal appeals court rejected the U.S. Department of Education’s attempt to delay a landmark settlement covering borrowers who said they were defrauded by their schools.
The ruling keeps the Sweet v. McMahon settlement on track, preserving at least $23 billion in student debt cancellation for more than 500,000 borrowers. It also clears the way for roughly 179,000 additional “post-class” applicants to receive relief after years of legal battles over borrower defense claims.
A three-judge panel of the U.S. Court of Appeals for the Ninth Circuit unanimously denied the Department of Education’s effort to modify the settlement timeline, concluding that the agency failed to justify changing an agreement it had previously accepted.
The court found that the department understood the consequences of the settlement when it agreed to it in 2022 and had not demonstrated that circumstances had changed enough to warrant altering its obligations. The ruling means the department must continue processing relief for eligible borrowers under the existing settlement terms.
What is the Sweet v. McMahon settlement?
Sweet v. McMahon began as a class-action lawsuit filed in 2019 by student loan borrowers who alleged that the Department of Education had failed to properly process borrower defense to repayment applications.
Borrower defense allows federal student loan borrowers to seek loan cancellation if they believe their school misled or defrauded them regarding issues such as tuition costs, accreditation, transferability of credits or employment prospects after graduation.
The settlement, reached in 2022 under the Biden administration, has since grown into one of the largest class-action settlements in U.S. history, providing at least $23 billion in relief to borrowers who attended schools accused of deceptive practices.
The latest court decision primarily affects approximately 179,000 post-class applicants who submitted borrower defense claims between June 23 and Nov. 15, 2022.
According to the Project on Predatory Student Lending (PPSL), many borrowers have already begun noticing changes to their student loan accounts as the discharge process begins.
Some borrowers may see balances increase, decrease or fluctuate while loan servicers unwind their accounts. PPSL says these temporary balance changes are a normal part of processing student loan discharges and generally indicate that relief is actively being processed.
Why the Department of Education lost its appeal
The Education Department argued that it had underestimated how many borrowers would apply for borrower defense relief during the five-month application period and sought additional time to process the cases.
The appeals court rejected that argument, noting the department knew roughly 179,000 post-class applicants would be covered when it asked the federal court to approve the settlement in September 2022. The judges also observed that the agency did not challenge the settlement terms until nearly three years later.
As a result, the original deadlines remain in place for determining eligibility and providing debt relief.
Which borrowers qualify for automatic relief?
The latest ruling reinforces automatic settlement relief for borrowers who missed decision deadlines established under the settlement.
Post-class applicants who attended schools listed in Exhibit C and did not receive a borrower defense decision by Jan. 28, 2026, are entitled to full settlement relief. Those borrowers should have received an eligibility notice from the Department of Education around March 30, 2026, with relief expected within one year of that notice.
Borrowers from non-Exhibit C schools who did not receive a decision by April 15, 2026, are also entitled to full settlement relief. Those borrowers should have received confirmation by June 15, 2026, with loan discharge likewise expected within a year of their notice.
Borrowers who believe they qualified but did not receive notification are encouraged by PPSL to check all email folders, including spam and deleted folders, for messages from the Department of Education before contacting PPSL and the department.
Relief includes more than loan cancellation
Eligible borrowers may receive several forms of relief under the settlement.
Depending on their circumstances, relief can include complete federal student loan cancellation, refunds of payments already made on eligible loans, removal of negative credit reporting related to those loans and resolution of pending borrower defense claims.
Many of the affected borrowers attended for-profit colleges or vocational institutions that were accused of misleading students about educational quality, accreditation or employment outcomes.
PPSL calls the settlement historic
In announcing the latest court victory, the Project on Predatory Student Lending described Sweet v. McMahon as “the largest class-action settlement in American history.”
The organization also noted that the settlement now totals at least $23 billion in relief, making it one of the largest legal settlements in U.S. history, behind only the combined tobacco settlements, the nationwide opioid settlements and the National Mortgage Settlement.
According to PPSL, its litigation efforts over the past decade have now secured cancellation of roughly $50 billion in fraudulent student debt involving dozens of schools, including ITT Technical Institute, Corinthian Colleges, University of Phoenix and the Art Institutes.
Advocates representing borrowers welcomed the appeals court decision as another affirmation that the Department of Education must fulfill its commitments under the settlement.
“Once again, the courts have rejected the Department’s attempts to evade its obligations to borrowers who have waited far too long for the relief they are owed,” Eileen Connor, the Executive Director of the Project on Predatory Student Lending, said in a statement.
Connor also said: “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.”
Student loan policy continues to evolve
The ruling comes as the Department of Education continues implementing major changes to the federal student loan system under the Trump administration.
New federal repayment options took effect on July 1 as part of broader student loan reforms. At the same time, the administration is facing additional legal challenges over borrowing limits for certain graduate programs and litigation surrounding the transition away from the SAVE income-driven repayment plan.
Separately, federal judges have blocked efforts to tighten eligibility requirements for the Public Service Loan Forgiveness program, meaning multiple aspects of federal student loan policy remain subject to ongoing court proceedings.
What borrowers should expect next
Eligible borrowers should continue monitoring their student loan accounts and email for official communications from the Department of Education as loan discharges are processed.
Borrowers who notice temporary balance fluctuations should not assume something has gone wrong. According to PPSL, changing balances are typically part of the discharge process and indicate that servicers are actively working through the settlement requirements.
For most borrowers who recently received eligibility notices, relief is expected to be completed within one year of those notifications, bringing a years-long legal battle closer to its conclusion.
Like Financial Freedom Countdown content? Be sure to follow us!
14 essential strategies to maximize your Social Security and avoid costly mistakes
Social Security is a vital lifeline for many seniors, providing crucial income support during retirement. With inflation at its highest in four decades, Social Security’s inflation-adjusted benefits offer protection against rising costs.
Rising interest rates have disrupted many retirement portfolios, causing bond fund values to plummet. In this volatile financial landscape, Social Security can stabilize a typical stock-bond retirement portfolio. By implementing smart strategies, retirees can maximize their Social Security benefits and ensure a more secure financial future.
14 Essential Strategies to Maximize Your Social Security and Avoid Costly Mistakes
11 reasons you should claim Social Security early
Deciding when to claim Social Security is often about maximizing your benefit. Financial planners usually advise delaying your claim for as long as possible to secure the highest monthly payment. Your benefit is based on your lifetime earnings, with a full payout available at your full retirement age (FRA), which is currently between 66 and 67 depending on your birth year. Claiming before FRA results in a permanent reduction in your monthly benefit, while waiting beyond FRA leads to a permanent increase. However, the decision isn’t solely about maximizing the monthly check. Personal factors such as health, family circumstances, and financial needs can play a significant role in determining the right time to claim.
11 Reasons You Should Claim Social Security Early
Did you find this article helpful? We’d love to hear your thoughts! Leave a comment with the box on the left-hand side of the screen and share your thoughts.
Also, do you want to stay up-to-date on our latest content?
1. Follow us by clicking the [+ Follow] button above,
2. Give the article a Thumbs Up on the top-left side of the screen.
3. And lastly, if you think this information would benefit your friends and family, don’t hesitate to share it with them!
John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
Here are his recommended tools
Personal Capital: This is a free tool John uses to track his net worth on a regular basis and as a retirement planner. It also alerts him wrt hidden fees and has a budget tracker included.
Platforms like Yieldstreet provide investment options in art, legal, real estate, structured notes, venture capital, etc. They also have fixed-income portfolios spread across multiple asset classes with a single investment with low minimums of $10,000.
