Student loans erased for 30,000 borrowers as court settlement delivers $12 billion in relief
Tens of thousands of federal student loan borrowers received welcome news ahead of a key court-ordered deadline, with approximately 30,000 people notified that their student loan balances had been discharged as part of the long-running Sweet v. McMahon lawsuit.
The latest round of loan cancellations represents roughly $12 billion in relief and marks another major milestone in a legal battle involving nearly 500,000 borrowers who accused the U.S. Department of Education of failing to properly process borrower defense claims tied to alleged misconduct by certain colleges and universities.
The Project on Predatory Student Lending announced that approximately 30,000 borrowers received emails notifying them that their federal student loans had been canceled ahead of a June 15 deadline established under the Sweet v. McMahon settlement.
According to the legal advocacy group, the latest round of approvals is part of an ongoing effort to provide relief to borrowers whose applications for borrower defense discharges were delayed for years. The organization said the newly canceled loans totaled approximately $12 billion based on Department of Justice data.
The Sweet v. McMahon lawsuit explained
The loan cancellations stem from the Sweet v. McMahon class-action lawsuit, which was originally filed after borrowers alleged that the Department of Education failed to act on borrower defense applications within a reasonable timeframe.
Borrowers participating in the case had previously filed complaints through the Department of Education’s Borrower Defense program, arguing that they had been misled by schools or were victims of misconduct. When many of those claims remained unresolved, borrowers pursued legal action.
Courts ultimately ruled in favor of the borrowers, and subsequent efforts by the Department of Education to delay implementation of the settlement were unsuccessful.
What is the borrower defense program?
The Borrower Defense program allows federal student loan borrowers to seek discharge of their debt if their school misled them or engaged in misconduct that violated certain laws or regulations.
The Department of Education notes that borrower defense relief applies only to federal student loans used to attend eligible institutions. Successful applications can result in complete cancellation of federal student loan balances associated with the misconduct claim.
According to The Project on Predatory Student Lending, borrower relief under the settlement has been rolled out in three separate phases.
Since notices first began going out in 2023, approximately 450,000 discharge applications have been approved. The most recent round of 30,000 approvals is part of phase three of the settlement process.
Phase three covers approximately 208,000 borrowers. Roughly 150,000 people have already received discharge notices, while around 48,000 borrowers are still awaiting a final determination.
Around 36,000 borrowers were eligible for automatic forgiveness
Separate notices were also scheduled to go out to approximately 36,000 federal student loan borrowers who met specific criteria under the settlement.
To qualify, borrowers must have submitted borrower defense applications between June 23, 2022, and Nov. 16, 2022, and must not have received a decision from the Department of Education by April 15, 2026.
The Project on Predatory Student Lending confirmed that the Department of Education had begun sending automatic forgiveness notifications to eligible borrowers before the June 15 deadline.
Earlier forgiveness rounds affected more than 160,000 borrowers. The latest approvals follow earlier rounds of automatic relief granted under the settlement agreement.
One group included approximately 164,000 borrowers who attended one of more than 150 institutions that the Department of Education identified as highly likely to have engaged in misconduct. Those borrowers were expected to receive automatic discharge notices by March 30 if they met the settlement requirements.
The ongoing approvals represent one of the largest borrower defense relief efforts ever implemented by the federal government.
Borrowers celebrate the long-awaited outcome
Many borrowers reacted positively after receiving their discharge notifications.
Student loan advocates received feedback from borrowers who spent years waiting for their applications to be reviewed and resolved.
Advocates say the loans should never have been issued. The legal group representing borrowers argued that the settlement has corrected harms caused by inadequate oversight of certain institutions.
“Through the settlement, we’ve delivered relief to students whose decisions to borrow student loans were based on false pretenses,” The Project on Predatory Student Lending said. “these loans never should have been made in the first place.”
Advocates have long argued that stronger regulatory oversight could have prevented many borrowers from taking on debt for programs that failed to deliver promised outcomes.
Student loan challenges extend beyond the lawsuit
The Sweet v. McMahon case is unfolding against the backdrop of broader uncertainty within the federal student loan system.
During the Biden administration, millions of borrowers enrolled in the SAVE repayment plan, which reduced monthly payments and offered pathways to eventual loan forgiveness. However, a lawsuit brought by seven states ultimately led to the plan’s termination, affecting more than seven million borrowers who had enrolled.
As a result, many borrowers continue to face questions about repayment options, forgiveness programs, and future Department of Education policies.
Despite recent forgiveness efforts, student loan debt remains a significant financial challenge for millions of Americans.
According to a study, total federal and private student loan balances reached approximately $1.87 trillion in March. The study found that one-third of borrowers have delayed purchasing a home because of their student debt, while 41% reported losing sleep or feeling anxious about their financial situation.
The impact extends into retirement planning as well. Data showed that employees aged 50 and older who still carry student loan debt have retirement account balances that are approximately 30% lower than those of similarly aged workers without student loans.
What borrowers should do if they did not receive a notice
Borrowers who believe they qualify for automatic relief under the Sweet v. McMahon settlement but have not received an email should first check spam, junk, and deleted email folders for messages from the Department of Education sent through [email protected].
Eligible borrowers may also contact student advocates for guidance regarding their status and potential next steps. With tens of thousands of determinations still pending, additional discharge notices are expected as the settlement continues to be implemented.
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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.
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