A class-action lawsuit targeting the U.S. Education Department has concluded with a court ruling that will result in loan forgiveness for nearly 450,000 federal student loan borrowers who claim they were deceived by their colleges. The case, originally filed seven years ago against the first Trump administration, centers on a federal regulation known as borrower defense, which permits borrowers to seek debt cancellation if educational institutions made fraudulent claims regarding employment prospects, credit transferability, or post-graduation earnings.
During the initial Trump administration, thousands of borrowers filing borrower defense claims experienced lengthy processing delays. Advocates subsequently filed suit, contending that the Education Department under then-Secretary Betsy DeVos had deliberately ceased processing applications and rejected claims without proper review. The lawsuit has maintained the same basic dispute across three administrations, changing defendant names as different education secretaries took office.
In 2022, the Biden administration reached a landmark settlement promising automatic loan relief for borrowers who attended a list of more than 150 primarily for-profit institutions. The agreement additionally allowed more than 250,000 additional borrowers to submit claims during a designated 2022 window, with the department required to review those applications within a specific timeframe or discharge the loans automatically. However, court documents revealed that the current Education Department had processed only 60,000 of these post-settlement applications by the deadline.
When the Education Department requested an 18-month extension to review the remaining claims more thoroughly, the U.S. Court of Appeals for the 9th Circuit rejected the request on July 17, ruling that the settlement’s obligations had been clear from the outset and that the department’s delayed objection came too late. Education Department officials responded that the original deadline was unrealistic, though the court determined the terms had been established years earlier.
The settlement has generated over $23 billion in combined loan discharges and refunds, positioning it as potentially the largest settlement ever against the U.S. government when fully completed. One borrower who enrolled at University of Phoenix for a psychology degree reported that recruitment counselors misrepresented the program’s acceptance by graduate schools, leading to her 2022 claim and eventual loan discharge following the July ruling.
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