Education Department Settles $23 Billion Student Loan Lawsuit

The United States Department of Education reached a $23 billion class-action settlement to resolve the Sweet v. McMahon lawsuit, providing debt cancellation for approximately 450,000 borrowers. The litigation, which began in 2019, alleged that for-profit colleges engaged in deceptive conduct by making false promises regarding job placement, earning potential, and the transferability of credits. A federal appeals court recently allowed the settlement to proceed and denied a request from the Trump administration to pause the processing of borrower defense applications, a move that could extend relief to an additional 200,000 applicants.

To be eligible for the settlement, borrowers must have filed claims under the federal borrower defense program on or before November 15, 2022. The court specifically ordered the forgiveness of debt for more than 170,000 borrowers misled by for-profit schools as part of the expanded relief.

In a separate initiative to combat record-level loan defaults seen in July, the department implemented a temporary 1% interest rate reduction for federal borrowers using automatic payments. Effective July 1, the reduction applies to those enrolled or signing up by September 30, 2026, and will remain in effect through June 30, 2028. Under Secretary of Education Nicholas Kent stated that the reduction helps borrowers consider affordable repayment plans and work to repay loans on time.