A class-action lawsuit challenging the federal government’s handling of borrower defense claims has concluded following a recent court decision, providing loan cancellation for hundreds of thousands of borrowers who alleged fraud by their educational institutions.
The borrower defense rule permits students to petition the U.S. Education Department to discharge federal student loans if they can demonstrate that their school engaged in deceptive practices regarding job placement rates, credit transferability, or post-graduation earnings. The litigation originated during the first Trump administration in 2019, when advocates alleged that the Education Department had ceased processing claims and rejected others without adequate review. The case proceeded through multiple administrations, with different education secretaries named as defendants throughout its progression.
In 2022, the Biden administration reached a settlement requiring automatic relief for borrowers who had attended more than 150 predominantly for-profit colleges. The agreement additionally permitted over 250,000 additional applicants to submit claims during a specified application window, with the department obligated to review these submissions within a predetermined timeframe or automatically discharge the associated loans. However, the current Education Department completed only 60,000 of these post-settlement applications by the court-appointed deadline, prompting the department to request an 18-month extension to properly evaluate the remaining claims.
A U.S. Court of Appeals ruling on July 17 rejected the department’s request for additional time, determining that the settlement obligations had been clearly established years earlier. The court noted that the department had delayed raising objections for three years after the initial agreement. Following this decision, affected borrowers have begun receiving debt cancellation. According to settlement advocates, the relief will ultimately total more than $23 billion across approximately 450,000 borrowers, potentially making it the largest settlement ever against the U.S. government.
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