Federal Court Blocks Education Department From Delaying Student Loan Forgiveness for 500,000 Borrowers

A federal appeals court has ruled that the Education Department must proceed with discharging federal student loans for more than 500,000 Americans, rejecting the agency's request to delay relief mandated under the Sweet v. McMahon settlement agreement. The Ninth Circuit Court of Appeals found no justification for postponing obligations the department had already accepted, marking another legal setback in the ongoing dispute over borrower protections.

The Settlement and Dispute

The Sweet v. McMahon case originated from a class action lawsuit initiated in 2017 by borrowers who alleged their Borrower Defense to Repayment applications were wrongfully rejected or delayed by the Education Department. Borrower Defense allows federal loan borrowers to request discharge when a college misled them about costs, accreditation, job prospects, or program value.

A 2022 settlement created a $23 billion relief package consisting of loan discharges, refunds of past payments, and other assistance. The agreement established specific deadlines for reviewing applications, including consequences if the department failed to meet those timelines.

The Latest Legal Challenge

The recent dispute centered on "post-class applicants"—individuals who submitted borrower defense claims between June 23 and November 15, 2022. The department was originally required to decide these applications by January 28, 2026, with a limited extension to April 15, 2026 for claims involving schools outside a designated list of 151 institutions with documented misconduct allegations.

When thousands of applications remained unresolved after the deadlines, the Education Department petitioned for additional time, citing resource constraints and staffing challenges. The court, however, rejected this request. Judges noted the department had known since February 2023 that the post-class group contained more than 205,000 applicants, making resource limitations insufficient grounds to modify an existing settlement agreement.

Borrower Relief and Impact

For the affected borrowers, full relief means complete cancellation of relevant federal loans, refunds of payments already made to the Education Department, and removal of the loans from their credit reports. Approximately 170,000 borrowers in the latest group are now entitled to this comprehensive relief due to missed processing deadlines.

Eileen Connor, President and Executive Director of the Project on Predatory Student Lending, stated that the ruling brings the settlement closer to fulfilling its promise to borrowers. She emphasized that the organization would continue fighting until all settlement obligations are realized.