A Court Just Ordered the Government to Erase $23 Billion in Student Loans — Here’s Who Gets Relief

2. EXECUTIVE NEWS SUMMARY

On July 17, 2026, a unanimous Ninth Circuit panel ruled the U.S. Department of Education must discharge student loans for more than 500,000 borrowers under the landmark Sweet v. McMahon settlement, totaling at least $23 billion in relief. The ruling ends the Trump administration’s months-long effort to delay or escape the 2022 agreement, which covers defrauded former students of for-profit colleges including ITT Technical Institute and Corinthian Colleges.

3. FEATURED SNIPPET ANSWER

The Sweet v. McMahon settlement is a $23 billion class action agreement requiring the U.S. Department of Education to discharge federal student loans for more than 500,000 borrowers who attended predatory for-profit colleges. On July 17, 2026, the U.S. Court of Appeals for the Ninth Circuit unanimously rejected the Education Department’s appeal to delay relief, ordering discharges, payment refunds, and credit reporting corrections to proceed.

 

4. MAIN ARTICLE

Court Forces $23 Billion Student Loan Erasure for Half a Million Defrauded Borrowers

A federal appeals court ended the Trump administration’s efforts to delay one of the largest legal settlements in American history — forcing the U.S. Department of Education to wipe out $23 billion in student loans for more than 500,000 people who say for-profit colleges defrauded them.

On July 17, 2026, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit unanimously rejected the Department of Education’s appeal seeking to delay relief for post-class borrowers under the Sweet v. McMahon borrower defense settlement — one of the largest government settlements in U.S. history. Watcher Guru

The ruling carries immediate consequences for hundreds of thousands of borrowers still waiting for promised relief.

What Happened?

The Ninth Circuit unanimously rejected the Department of Education’s appeal to delay student loan relief for more than 170,000 borrowers under the Sweet v. McMahon borrower defense settlement, affirming the district court’s ruling on July 17, 2026. The judges found the Department failed to show the “changed circumstances” legally required to modify a settlement it agreed to in 2022, and said the agency knew exactly what it was signing up for. Forbes

The ruling is the culmination of months of failed efforts by the Trump administration to delay relief for student loan borrowers under the landmark 2022 settlement agreement, which provides $23 billion in discharges of federal student loans, refunds of past payments, and other relief. Ppsl

The student loan borrower plaintiffs said their schools significantly misled them and that the Trump administration delayed delivering the relief to which they were entitled under a protection known as Borrower Defense — a federal program that allows defrauded student borrowers to seek loan forgiveness.

Background & Context

The Sweet v. McMahon case has outlasted three Education Secretaries and two presidential administrations — making its final resolution one of the most legally durable borrower victories in the history of federal student lending.

Over the past several decades, millions of students borrowed federal student loans to attend various for-profit colleges, including ITT Technical Institute, Corinthian Colleges, the Art Institutes, Salter College, Brooks Institute of Photography, and more. Between 2015 and today, over 750,000 borrowers have asserted their right under federal law to discharge their federal student loans due to their schools’ misconduct through a process called “borrower defense.” MyEDDebt

The Department of Education started adjudicating these claims in 2016, approving nearly 28,000 borrower defenses in the six-month period before January 20, 2017. Then, under Secretary Betsy DeVos, the Department halted all processing of borrower defense claims. MyEDDebt

A class action lawsuit filed in 2019 forced the issue back into federal court. The Biden administration settled the case in November 2022, binding the Department to a strict timeline for processing applications and delivering relief. The case was called Sweet v. Cardona at the time. When the Trump administration took over in 2025, it inherited those legally binding obligations — and immediately began challenging them.

If the Education Department failed to issue a decision on post-class applicants’ borrower defense applications by the end of January 2026, those borrowers would be entitled to full settlement relief — including student loan forgiveness, refunds of past payments, and corrections to credit reporting. Ppsl

Despite having a three-year window to review the Borrower Defense requests for post-class applicants, the Education Department adjudicated only a small portion of the more than 200,000 applications submitted. Ppsl

The Department then asked the court for an 18-month extension. The court denied it. The Department appealed to the Ninth Circuit and asked for an emergency stay. The Ninth Circuit denied that too, finding the Department was unlikely to succeed on the merits. Then came the final appeal — and the July 17 ruling ended it.

Official Statements & Reaction

The Project on Predatory Student Lending declared Sweet v. McMahon “the largest-ever settlement against the U.S. federal government, and the largest class action settlement in American history.” The group noted the settlement now follows only the combined tobacco settlements of 1998, the combined opioid settlements of 2021, and the National Mortgage Settlement of 2012 as one of the largest legal settlements in U.S. history overall. MyEDDebt

PPSL attorney Eileen Connor likened the case to the historic settlement against Big Tobacco: “Like cigarettes, she says, these student loans to predatory schools are ‘toxic products.'” senate

The Department of Education did not publicly announce a plan to appeal the Ninth Circuit’s ruling to the Supreme Court, and at the time of the ruling, there was no real sign the Department planned to push back any further. CNBC

On June 18, 2026, however, PPSL sent the Department of Education and the Department of Justice a formal Notice of Material Breach of the Sweet settlement agreement, alleging that the Department had failed to deliver the full settlement relief required by the settlement and raising concerns about ongoing delays. MyEDDebt

Expert Analysis & Economic/Social Impact

Over the last ten years, the Project on Predatory Student Lending has secured the cancellation of $50 billion of fraudulent student debt on behalf of borrowers who attended dozens of predatory schools, including ITT Technical Institute, Corinthian Colleges, University of Phoenix, and the Art Institutes. MyEDDebt

The sheer dollar scale of the Sweet settlement reshapes how advocates, lawmakers, and legal scholars assess the government’s accountability to defrauded students.

Borrower defense discharges remain federally tax-free in 2026, unlike income-driven repayment forgiveness — a distinction that shields Sweet borrowers from the large tax bills that can follow other forms of student loan cancellation. The College Investor

However, the settlement’s delivery timeline creates a critical window for borrowers. Under the terms of the settlement, the latest the Education Department can clear an eligible borrower’s debt is June 15, 2027.

The June breach notice from PPSL signals that advocacy groups are actively monitoring compliance and ready to return to court if the Department drags its feet on the actual disbursement of relief.

Opposing Views & Key Debates

The Trump administration argued the Department needed more time to review Borrower Defense applications and that the 2022 settlement imposed obligations the agency could not meet on the agreed timeline given a change in administration and policy direction. The Education Department’s November 2025 filing sought an 18-month extension of the January 2026 deadline — a request the district court and then the Ninth Circuit both rejected.

District Judge Haywood Gilliam wrote in his February 24, 2026 opinion: “At no point before November 2025 did the Department signal that it would have any trouble meeting its deadline.” Lower Bucks Times

Critics of the borrower defense program have argued it creates a perverse incentive — encouraging schools to take federal loan money knowing that the government may ultimately discharge the debt, shifting the cost entirely to taxpayers. They also contend that group discharge approvals, which cover borrowers who never filed individual applications, exceed the agency’s statutory authority.

Borrower advocates counter that the program exists precisely because for-profit colleges took billions in federal student loan dollars while delivering worthless credentials, leaving students with debt and no path to the careers they were promised. The courts — across three administrations — have consistently sided with this view in the Sweet litigation.

The One Big Beautiful Bill Act, signed July 4, 2025, permanently blocked Biden’s 2022 borrower defense rules and restored the stricter 2019 regulations — meaning future borrowers outside the Sweet settlement face a more difficult path to relief even as current class members benefit from the court order. Get Out of Debt Guy

Who Is Affected?

Hundreds of thousands of student loan borrowers have gotten their debts forgiven, or soon will, under the $23 billion class action settlement with the U.S. Department of Education.

Original class members — those covered by the 2022 settlement’s core terms — have largely received notices and discharges over the past two years.

Post-class Exhibit C applicants — approximately 170,000 borrowers who attended schools on the settlement’s “Exhibit C” list and whose applications were not decided by January 28, 2026 — are entitled to full relief. They should have received a notice from the Department confirming their eligibility for full settlement relief on or around March 30, 2026, with relief to be delivered within one year of that notice. NPR

Non-Exhibit C post-class applicants — roughly 30,000 additional borrowers from schools not on Exhibit C whose applications were not decided by April 15, 2026 — are also entitled to full relief. The Department met its June 15, 2026 deadline to notify this final group, with discharge emails sent from noreply@studentaid.gov.

Schools covered by the settlement include ITT Technical Institute, Corinthian Colleges, the Art Institutes, Westwood College, CollegeAmerica, Marinello Schools of Beauty, Drake College of Business, and certain Lincoln Technical Institute campuses, among others.

Taxpayers bear the cost of the discharges, which reduces federal student loan receivables. Analysts estimate the $23 billion figure will increase as remaining discharges are processed.