Student-loan borrowers see debt relief move forward under $23B Sweet vs. McMahon settlement

A federal court denied the Department of Education’s request to delay student-debt relief for borrowers entitled to relief under the Sweet vs. McMahon settlement. The settlement has allowed for $23 billion in relief for more than 500,000 borrowers who were defrauded by their schools.

The latest decision led to automatic relief for an additional 170,000 borrowers, according to the Project on Predatory Student Lending, which represents borrowers in the case.

The appeals court ruling affects student-loan borrowers who submitted claims for relief between June 23 and November 15, 2022. These claims are tied to borrower defense to repayment, a process borrowers can use if they believe their school defrauded them.

If a borrower defense claim is approved, the student debt tied to attending that school can be wiped out.

The Project on Predatory Student Lending said some borrowers have started to see their balances fluctuate. The group described that as “a good sign” that typically means servicers are working to process the discharge.

For affected borrowers, the key takeaway is to monitor loan balances and servicing updates as automatic relief is processed.

The ruling comes as the Education Department is working to implement sweeping student-loan repayment changes while facing other legal challenges. Advocacy groups have filed lawsuits over new borrowing caps for advanced degrees and a separate lawsuit seeking to stop the forced transition of borrowers in the SAVE income-driven repayment plan.

The settlement’s progress is a major development for defrauded borrowers, but the broader student-loan policy landscape remains contested.