US cancels student loans for 170,000 borrowers defrauded by for-profit colleges
The Education Department is cancelling federal student loans for more than 170,000 borrowers who say for-profit colleges defrauded them, after an appeals court cleared the way for the Sweet v. McMahon settlement.
The U.S. Education Department is cancelling federal student loans for more than 170,000 borrowers who say for-profit colleges defrauded them. The discharges follow a federal appeals court ruling that cleared the Sweet v. McMahon settlement, a $23 billion class-action deal covering roughly 450,000 borrowers.
The U.S. Education Department is cancelling federal student loans for more than 170,000 borrowers who say they were defrauded by for-profit colleges, after a federal appeals court rejected a challenge to the settlement and ordered the discharges to continue. The case, Sweet v. McMahon, ends a legal fight that stretched across several years and, according to reports, three presidential administrations. The borrowers brought their claims under the Borrower Defense to Repayment regulation, a federal rule dating to 1994 that allows loan forgiveness when a school deceives students — in this case, allegedly about job prospects and potential earnings. Roughly 450,000 borrowers are covered by or eligible for relief under the class action, though a court said the settlement requires discharges for around 500,000. The settlement is valued at $23 billion, and the legal organization representing the class described it as the largest ever reached against the U.S. federal government. The actual debt cancelled so far is far smaller — roughly $11 billion, according to reports — a gap that remains one of the central points of dispute.
Court rejects challenge, loan discharges proceed
The Education Department is moving ahead with cancelling federal student loans for more than 170,000 borrowers under the Sweet v. McMahon settlement, after a federal appeals court rejected a challenge to the agreement and ordered the discharges to continue.
The ruling removed the last major legal obstacle to the settlement, which had been tied up in litigation for years. According to reports, the challenge was brought by the Trump administration, which had sought to halt or delay the relief. The appeals court declined, requiring the department to proceed with cancelling the loans of borrowers who say they were defrauded by for-profit colleges.
The decision means the discharges are no longer contingent on further court action. Borrowers covered by the settlement alleged their schools deceived them, including about job prospects and potential earnings. With the challenge rejected, the legal dispute that stretched across several years has effectively ended, and the department is carrying out the cancellations the settlement requires.
A $23 billion settlement with disputed numbers
The settlement, known as Sweet v. McMahon, is valued at $23 billion and resolves claims brought by student loan borrowers against the federal government, according to reports. The legal organization representing class members has described it as the largest settlement ever reached against the U.S. federal government.
Sources disagree on how many borrowers it actually covers. Some report that roughly 450,000 borrowers are covered by or eligible for relief under the class-action case. Others state that a court found the settlement requires loan discharges for around 500,000 borrowers. A further account puts the number of defrauded borrowers receiving relief at close to 500,000.
The reported dollar figures also diverge: alongside the $23 billion valuation, reports cite total debt cancellation of roughly $11 billion. How the two figures relate to each other has not been made clear in the coverage.
Years of litigation over defrauded borrowers
The borrowers at the centre of the settlement say they were deceived by the for-profit colleges they attended. Their allegations include false promises about job prospects and potential earnings after graduation.
Their claims were filed under the Borrower Defense to Repayment regulation, a federal rule dating to 1994 that allows loan forgiveness when a borrower's school has defrauded them. The regulation has faced repeated court challenges over the years, and claims brought under it became the subject of a class-action lawsuit that remained tied up in litigation for years before any discharges began.
The legal fight behind the settlement reportedly extended across three presidential administrations, according to reports, though the precise timeline of the case's early years has not been settled in public reporting. The Student Borrower Protection Center, a nonprofit focused on student loan borrowers, has been among the organisations tracking the dispute.
Borrower-defense rule originates
Borrower-defense rule originates
What borrowers get — and what is still unclear
Borrowers covered by the settlement stand to have their federal loans discharged entirely. According to reports, the relief also includes refunds of payments already made and repairs to borrowers' credit records, though these details have not been independently confirmed.
Much remains unclear. It is not known how many of the eligible borrowers have actually received discharges so far, as opposed to merely qualifying for them. Nor is there a confirmed figure for the total dollar amount discharged to date. Reports put the debt cancellation at roughly $11 billion, but that number has not been verified and should be treated as an estimate. The Education Department has not said when it began processing the discharges or when it expects to finish, leaving hundreds of thousands of borrowers waiting for certainty about when — or whether — their balances will reach zero.
Frequently asked questions
What is the Sweet v. McMahon student loan settlement?
The Education Department is cancelling federal student loans for more than 170,000 borrowers who say they were defrauded by for-profit colleges. The discharges flow from a class-action settlement, known as Sweet v. McMahon, that a federal appeals court upheld after rejecting a challenge and requiring the department to continue discharging the loans.
How many borrowers get student loan forgiveness under the settlement?
Sources disagree. The settlement is described as covering roughly 450,000 borrowers eligible for relief, while a court said it requires loan discharges for around 500,000 borrowers. The Education Department is cancelling loans for more than 170,000 borrowers in the current round. How many have actually received discharges so far is not yet known.
How much is the student borrower settlement worth?
That depends on the source. The settlement is valued at $23 billion, which the legal organization representing class members reportedly called the largest ever reached against the U.S. federal government. Separately, the actual debt cancellation is reported at roughly $11 billion. The exact dollar amount discharged to date is not yet known.
What is Borrower Defense to Repayment?
Borrower Defense to Repayment is a federal regulation, dating to 1994, that allows loan forgiveness when a borrower's school defrauded them. Borrowers in this case alleged their schools deceived them, including about job prospects and potential earnings. The regulation has faced repeated court challenges over the years.
Why was the student loan settlement delayed in court?
The class-action lawsuit had been tied up in litigation for years, with the legal fight reportedly extending across three presidential administrations. A challenge to the settlement, which reports attribute to the Trump administration, was rejected by a federal appeals court, which required the Education Department to continue discharging the loans. The settlement ends the dispute.
Compiled from reporting by 8 independent outlets. How we source our reporting.
