A federal appeals court has rejected a request by the U. S.
Department of Education to delay processing pending borrower defense applications.
This secures roughly $23 billion in student loan cancellation for approximately 450,000 individuals as of July 31, 2026.
The ruling by the U. S.
Court of Appeals for the 9th Circuit clears the way for nearly 200,000 additional applicants to receive full debt relief under the landmark Sweet v.
McMahon class-action lawsuit.
The decision marks the end of a seven-year legal battle spanning three presidential administrations.
It involved allegations that predatory institutions, mostly for-profit colleges, defrauded students regarding job placement rates, credit transferability, and potential earnings.
Background of the Lawsuit
Advocates originally filed the lawsuit in 2019, alleging the federal government unlawfully delayed and wrongfully rejected claims submitted through the Borrower Defense program.
Under a 2022 settlement framework, borrowers who attended designated institutions became eligible for automatic cancellation, while post-class applicants were promised timely reviews.
Because federal officials missed court-ordered processing deadlines, automatic relief was triggered for the remaining applicants.
Legal representatives for the plaintiffs emphasized that the government failed to honor its legal requirements while borrowers faced severe financial and personal consequences during years of administrative gridlock.
"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, executive director of the Project on Predatory Student Lending.
Connor noted that the resolution holds public institutions accountable to federal standards.
"It makes clear that the federal government cannot simply disregard borrowers' rights and its own legal obligations without consequence," Connor said.
She further detailed how misleading promises from colleges impacted borrowers' daily lives, leaving many with credentials employers ignored and insurmountable debts.
"Instead, many were left with enormous debts, credentials employers did not respect, credits that would not transfer, and, in some cases, no degree at all," Connor said.
She added that the financial strain spilled over into critical life choices and mental health.
"Borrowers also described panic attacks, anxiety, depression and years of being unable to plan for the future," Connor said.
Connor noted that while average loan balances erased under the agreement exceeded $48,000, specific discharge amounts vary, with eligible borrowers also qualifying for refunds averaging over $15,000.
"Individual amounts vary significantly, however, and many borrowers received substantially more or less," Connor said.
Regarding timelines and qualification scope, Connor clarified that the program remains strictly closed to new applicants.
"It is not something one can newly qualify for today," Connor said. She added that final processing timelines will extend through mid-2027 based on specific case details.
"Under the terms of the settlement, the latest the Education Department can clear an eligible borrower's debt is June 15, 2027," Connor said.
In response to the court ruling, government representatives maintained that the timeline established by the court was impractical for administrative processing.
"The Sweet settlement imposed an unrealistic deadline," said Ellen Keast, an Education Department spokesperson. Keast defended the department's actions during the litigation process.
"The Department has complied in good faith with court orders, and we believe the court erred in not granting our reasonable request," Keast said.
Affected borrowers shared the long-term impact of carrying fraudulent debts while awaiting regulatory decisions.
"They really marketed heavily in the area. It was on every radio station, every newspaper.
It was everywhere," said Jessica Feindt, a post-class applicant from Michigan who took out federal loans to attend the University of Phoenix.
Feindt described her reaction after logging in to find her balance erased following the court decision.
"I feel like I should be happy, but I'm really angry about all the years that my family suffered under these loans," Feindt said.
Financial experts noted that government delays compounded the problem by allowing interest to accumulate over multiple political terms.
"The federal government has no one else to blame but themselves for ballooning balances due to accruing interest over this time as three administrations, under both parties, failed to complete their duty under the federal student loan program," said Drew Powers, founder of Powers Financial Group.
Other industry observers emphasized that while the court decision resolves the debt balances, long-term credit damages remain for victims of predatory lending.
"This is welcome news for those who were victims of predatory lending and false promises made by now defunct and insolvent colleges and institutions across the country," said Kevin Thompson, CEO of 9i Capital Group.
Thompson highlighted the broader economic constraints imposed on borrowers during the litigation period.
"This is a step in the right direction, but many borrowers have already endured years of financial hardship.
Damaged credit scores, limited access to credit, and exclusion from the broader economy have all resulted from debt that should have never existed in the first place," Thompson said.
Higher education analysts pointed out that while debt relief provides immediate restitution, systemic lessons remain for future students.
"Student borrowers who attended schools found to have engaged in widespread fraud or misconduct stand to gain the most, because this relief is intended to eliminate federal student loan debt that should never have been incurred under false promises about educational quality, job placement, or earnings potential," said Alex Beene, financial literacy instructor at the University of Tennessee at Martin.
Beene added that long-term vigilance is necessary when selecting higher education options.
"This continues the shift toward holding some colleges more accountable for deceptive practices, but it also reinforces the need for prospective students to carefully evaluate different factors before applying to go to school.
Even if debt can be eliminated, the years it takes to right the financial wrongs can take their toll on the financial and mental stress levels of those affected," Beene said.
Higher education expert Mark Kantrowitz noted that private student loans do not qualify for Borrower Defense relief under the federal settlement, though some states offer individual tuition recovery funds for closed institutions.
The Department of Education will continue discharging balances for covered federal borrowers through the court-mandated deadline.
