Education Department Must Discharge Student Loans For 205,000 Borrowers After Major Court Defeat

Borrowers scored a major victory on Wednesday after a federal appeals court rejected an emergency appeal by the U.S. Department of Education to delay student loan relief for tens of thousands Americans who claim they were defrauded by their school. The ruling, the latest in a series of losses for the Trump administration in the Sweet v. McMahon case, paves the way for the department to automatically discharge the student loans of roughly 205,000 borrowers.
“The Ninth Circuit Court of Appeals has denied the Department of Education’s latest attempt to delay settlement relief in the Sweet case,” said the Project on Predatory Student Lending, the legal organization that has been representing borrowers in the class action lawsuit and subsequent settlement for nearly a decade, in a statement on X on Wednesday. “Again, the law has proven to be on our side.”
Here’s what the latest ruling means for the Sweet v. McMahon settlement, and when covered borrowers should expect to receive more information on student loans forgiveness, refunds, and other relief.
Sweet v. McMahon Settlement Provided For Discharges Of Student Loans For Defrauded Borrowers
The 2022 Sweet v. McMahon settlement agreement between the Education Department and a class of hundreds of thousands of student loan borrowers was intended to resolve longstanding allegations of mismanagement, delays, and arbitrary rejections of relief under Borrower Defense to Repayment. The Borrower Defense program offers borrowers a pathway to discharge their student loans if they can demonstrate that the school they attended engaged in certain kinds of misconduct, such as misrepresenting admissions selectivity or job prospects to convince prospective students to enroll.
The settlement provided for automatic student loan relief for class members, which the agreement defines as those who had submitted Borrower Defense applications requesting student loan forgiveness by June 2022, when the Sweet v. McMahon (then called Sweet v. Cardona) settlement agreement had been finalized, and who had attended one of more than a hundred institutions on an approved list (referred to as Exhibit C). Settlement relief includes a discharge of applicable federal student loans, as well as refunds of prior payments borrowers made on those loans. Relief can also include the deletion of negative credit reporting associated with the discharged student loans.
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A second group of borrowers, called post-class applicants, were also potentially entitled to relief under the Sweet v. McMahon settlement agreement. The agreement defined post-class applicants as those who submitted their Borrower Defense applications between June 2022 (when the settlement agreement was finalized) and November 2022 (when the agreement was ultimately approved by the court and made “official”). Under the settlement, post-class applicants would be entitled to have their Borrower Defense applications reviewed within three years. If the Education Department failed to issue a decision on their application by the end of January 2026, post-class applicants would be entitled to full settlement relief, just like Sweet v. McMahon class members. This includes student loan forgiveness, refunds of past payments made on their federal student loans, and corrections to credit reporting.
Education Department Sought To Delay Discharging Student Loans Under Sweet v. McMahon Settlement
Despite having a three-year window to review the Borrower Defense requests for post-class applicants, the Education Department only adjudicated a small portion of the more than 200,000 applications submited by student loan borrowers. The Project on Predatory Student Lending, or PPSL, argued that the department entered into a legally binding contractual agreement in 2022, and that post-class applicants were now entitled to a discharge of their federal student loans because of the department’s failure to review those applications by the January 2026 deadline.
The department, however, sought a year-and-a-half delay for providing any settlement relief to post-class applicants. Citing resource limitations and insufficient staffing sufficient to adequately review such a significant group of student loan borrowers, the department filed two separate motions with the district court overseeing the Sweet v. McMahon settlement asking for an extension of the post-class deadline.
“Due to a variety of circumstances—including most notably the unanticipated size of the postclass pool, the Department’s reasonable but unexpected resource constraints, and the new requirement in certain circumstances that the Department now discharge ineligible loan debt unrelated to a post-class applicant’s borrower defense application—the Court should provide the Department relief,” said the department in one of its motions.
But two separate judges at the district court largely denied the department’s requests. The court kept in place the January 2026 deadline for post-class applicants who had attended Exhibit C schools, but agreed to extend the deadline for other post-class applicants to mid-April.
“At no point before November 2025 did the Department signal that it would have any trouble meeting its deadline,