Thousands of student loan borrowers are getting debt completely wiped out

More than 170,000 federal student loan borrowers are set to have a combined $11 billion in debt forgiven under a settlement involving the U.S. Department of Education.

This is tied to a years-old lawsuit involving borrowers who say their colleges misled them, committed fraud, or broke state laws and then left them buried in debt for degrees that did not deliver what was promised. Here is everything you need to know about the development.

The government was supposed to deal with these claims

The whole thing goes back to a federal program called Borrower Defense to Repayment. The basic idea is that if a college or career school seriously misled a borrower or broke certain laws, borrowers can ask the Department of Education to cancel their federal student loans and potentially refund payments they have already made.

But there's a catch. The Education Department has to approve that claim. And according to the lawsuit, the agency spent years leaving huge numbers of applications sitting in limbo. The plaintiffs alleged that hundreds of thousands of borrowers who had legitimate claims were essentially stuck waiting while interest and debt continued piling up. According to one borrower, her balance ballooned from $250,000 to more than $400,000 while she waited for her application to be resolved.

This settlement is absolutely massive

The case, known as Sweet v. DeVos, has already resulted in billions of dollars in relief. The Biden administration reached an initial settlement in 2022, with roughly $6 billion in relief going to about 300,000 borrowers. But the fight didn't end there. According to the Project on Predatory Student Lending, the backlog grew by another 210,000 applications as the Trump administration continued seeking delays.

Then came the latest plot twist. On July 17, a federal appeals court rejected another request from the Education Department to delay the relief schedule by an additional 18 months. That means the government now has to keep moving.

More than $11 billion is on the way

The immediate group affected by the latest development includes more than 170,000 borrowers, who collectively stand to have about $11 billion in student debt wiped out. But the full class involved in the settlement is even bigger. We're talking about roughly 500,000 people and around $23 billion in total debt.

The Project on Predatory Student Lending describes Sweet as the largest class-action settlement in American history by monetary relief and the largest settlement ever reached against the federal government.

Who actually qualifies?

To qualify for this particular settlement, you must have submitted a Borrower Defense application by November 15, 2022. If you didn't apply by that date, you're not part of this settlement.

However, borrowers who attended schools included on the Education Department's eligible-school list may still be able to apply for Borrower Defense separately. Any relief they receive would not come from this settlement fund.

If you did apply before the deadline, check your email for a message from noreply@studentaid.gov. No email? Don't immediately assume you've been forgotten by the federal government (although, given the history of this case, the concern is understandable).

The Project on Predatory Student Lending says borrowers can contact info@ppsl.org and copy sweet@ed.gov to check their status. Include your name, application date, and Borrower Defense application number.

You don't have to keep making payments while you wait

Borrowers caught up in the settlement don't have to make payments while they wait for their relief. The Education Department's final deadline to complete the required loan discharges is June 15, 2027.

The average federal student loan balance among the hundreds of thousands of borrowers covered by the settlement was more than $48,000, according to Eileen Connor, president and executive director of the Project on Predatory Student Lending. For someone carrying that kind of balance, having the debt disappear is potentially the difference between spending years digging out of debt and finally being able to move on.

Source: The U.S. Sun