Sweet v. McMahon student loans: 450,000 borrowers eligible for relief

The Sweet v. McMahon student loans settlement now puts about 450,000 federal borrowers on track for debt cancellation after a late-July federal appeals court decision. For borrowers carrying old school-related debt, the ruling matters because it can erase balances, and in some cases trigger refunds, tied to schools accused of misconduct.

The case centers on Borrower Defense, a federal protection that allows student loan borrowers to seek cancellation when their school misled or defrauded them. Plaintiffs said their schools deceived them and that the Trump administration failed to process relief they were owed, according to The Project on Predatory Student Lending, which filed the lawsuit in 2019.

A federal appeals court denied Trump officials’ latest request to delay decisions on a large group of applications. That decision allows nearly 200,000 additional borrowers to have their loans discharged under the $23 billion class-action settlement with the U.S. Department of Education.

Who qualifies for Sweet v. McMahon student loan forgiveness?

Eligibility depends on the school a borrower attended and the timing of the borrower’s Borrower Defense application, according to Eileen Connor, president and director of The Project on Predatory Student Lending. Connor said borrowers cannot newly qualify for the settlement today.

Borrowers may be included if they had a Borrower Defense claim pending with the Education Department in November 2022. The settlement also covers some borrowers whose applications were denied from December 2019 through October 2020.

The Education Department has notified eligible borrowers, and borrowers can check when they submitted an application at Studentaid.gov. A separate federal list identifies the schools connected to the settlement.

The settlement applies only to federal student loans. Higher education expert Mark Kantrowitz said private student loans do not qualify for Borrower Defense, though nearly two dozen states have tuition recovery fund programs for students who attended for-profit schools that closed.

What schools and borrowers were affected?

Connor said dozens of schools were included in the settlement because the Education Department had significant evidence of institutional misconduct. Many of the schools were for-profit colleges that have since closed, though not every school in the case was for-profit.

According to Connor, students were promised outcomes such as steady jobs, higher pay and transferable credits. Many borrowers instead ended up with large debts, credentials employers did not value, credits that would not transfer or no degree, she said.

The financial fallout went beyond monthly loan bills. Connor said some borrowers were turned down for mortgages or car loans because of their federal debt, while others delayed having children or put off medical care. She also said borrowers described anxiety, depression, panic attacks and years of uncertainty about their finances.

How much relief can borrowers receive?

The average federal student loan balance wiped out under the settlement was more than $48,000, Connor said. Individual amounts differ widely, with some borrowers receiving more and others receiving less.

Some eligible borrowers may also receive refunds for payments they previously made on the covered debt. Connor said the typical refund for borrowers who qualify for one is over $15,000.

The timing depends on each borrower’s case and application date. Under the settlement, Connor said the Education Department’s latest deadline to clear eligible debt is June 15, 2027. Borrowers are not required to make payments while they wait for the relief.

The case has lasted across three presidential administrations, with its name changing from Sweet v. DeVos to Sweet v. Cardona and then Sweet v. McMahon. The Education Department did not respond to CNBC’s request for comment. In April court filings, the Trump administration said it needed more time because an unexpectedly large applicant pool could produce what it called a substantial taxpayer-funded windfall.

This story draws on original reporting from CNBC.