Court clears student loan cancellation for 170,000 more defrauded borrowers

A federal appeals court has rejected the U.S. Education Department's latest attempt to delay student loan relief, ordering it to keep canceling federal loans for borrowers who say their schools defrauded them. The July 17 ruling clears the way for more than 170,000 additional borrowers to have their debts erased, with reports putting the cleared forgiveness at about $11 billion. The decision stems from Sweet v. McMahon, a class-action settlement resolving claims from borrowers who attended for-profit schools and said they were misled. The case had been tied up in court for years. Under the settlement, the Education Department must wipe out federal loans for approximately 500,000 borrowers, though sources differ on the figures: some describe roughly 450,000 borrowers as eligible under a settlement valued at about $23 billion. The ruling matters because it forces relief forward after repeated delays. Borrowers filed claims under Borrower Defense to Repayment, a 1994 regulation allowing forgiveness when a school defrauds its students. Advocates, including the Student Borrower Protection Center, have called the agreement the largest settlement ever reached with the federal government.

Appeals court orders loan discharges to continue

A federal appeals court rejected a challenge to the Sweet v. McMahon settlement and directed the Education Department to keep discharging the affected federal student loans. The ruling clears the way for the department to cancel loans for roughly 170,000 additional borrowers who said they were defrauded by their schools.

According to reports, the court's decision was dated July 17 and turned down the Education Department's most recent effort to postpone relief. Outlets covering the ruling put the resulting forgiveness at about $11 billion in student loan debt for over 170,000 borrowers.

The decision removes the latest obstacle in a class-action case that had been tied up in court proceedings for years. Under the settlement, the Education Department is required to wipe out federal student loans for approximately 500,000 borrowers, most of whom attended for-profit schools. The appeals court's order means the department must continue processing those discharges rather than pause them while further challenges play out.

A $23 billion settlement with disputed numbers

The agreement, known as Sweet v. McMahon, resolves claims from borrowers who attended for-profit schools and said their colleges deceived them about matters such as employment prospects and potential earnings. Valued at about $23 billion, it ranks among the largest class-action settlements in American history, and the legal organization representing the borrowers has described it as the largest settlement ever reached with the U.S. federal government.

The figures attached to the settlement vary across accounts. Some sources report that around 450,000 borrowers said they were defrauded and sought cancellation of their federal loans. Yet the settlement itself requires the Education Department to wipe out loans for approximately 500,000 borrowers. One account puts the eligible population at roughly 450,000, though that figure could not be independently confirmed.

What is clear is that the class action spent years tied up in court before reaching this point.

A 1994 rule at the center of years of litigation

The legal foundation for the relief is the Borrower Defense to Repayment regulation, which dates to 1994. It permits the federal government to forgive student loans when a borrower can show their school defrauded them. The rule has faced repeated court challenges over the years, and the class-action case at the heart of this settlement, Sweet v. McMahon, was tied up in litigation for years before the current agreement took shape.

According to reporting on the case, the Trump administration had sought to delay the forgiveness before the relief moved forward. The Education Department later made its own effort to postpone the discharges, but a federal appeals court turned down that bid in a ruling dated July 17, directing the department to keep canceling the affected loans.

1. 1994

   The Borrower Defense to Repayment regulation is established, allowing federal loan forgiveness for borrowers defrauded by their schools.

2. July 17

   A federal appeals court rejects the Education Department's latest bid to delay relief and orders continued discharge of the affected loans.

3. After the July 17 ruling

   More than 170,000 additional borrowers are set to receive loan forgiveness, with about $11 billion in debt cleared for cancellation.

What advocates say and what borrowers still await

Advocates for the borrowers have cast the outcome in sweeping terms. The legal organization representing class members described the agreement as the largest settlement ever reached with the U.S. federal government, according to reports. The Student Borrower Protection Center, a nonprofit focused on protecting student loan borrowers, is among the advocacy groups involved in the case.

Questions remain about what happens next. It is not yet known when borrowers beyond the roughly 170,000 covered by the latest discharges will see their loans canceled. The timing of the Trump administration's earlier attempt to delay the relief also remains unclear, as does the date the settlement was originally reached.

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