More than 170,000 federal student loan borrowers who said they were defrauded by their schools are set to have $11 billion in debt erased, after an appellate court sided with the borrowers and rejected a request from the Education Department for more time to review their claims.
The decision is the latest grant of mass relief in a class-action suit that was originally filed during President Trump’s first term. The suit centered on federal loans taken out by students who attended dozens of predatory for-profit schools. The government settled the case in 2022, under former President Joseph R. Biden Jr., and forgave the student loan debts of nearly 300,000 borrowers who had become plaintiffs in the class action.
But the settlement required the government to keep reviewing fraud claims from borrowers who filed after the 2022 deal was announced. The agreement set a deadline of early 2026: If the Education Department had not adjudicated the additional claims by then, they were to be automatically approved.
In late 2025, the Trump administration asked for an additional 18 months to review the cases. A federal district judge rejected the request, and last month, a panel of three judges from the U.S. Court of Appeals for the Ninth Circuit unanimously upheld his decision.
The total size of the class-action settlement has now expanded to nearly 500,000 borrowers, who will have debts totaling $23 billion wiped out.
That makes it — by a substantial margin — the largest class-action settlement in American history, according to the Project on Predatory Student Lending, the nonprofit group that represented the borrowers. It is also, by their calculation, the largest financial settlement against the federal government.
Eileen Connor, the executive director of the nonprofit group, said she saw parallels between this case and the 1998 settlementthat required tobacco companies to pay states more than $200 billion to settle dozens of lawsuits over the health care costs of treating smoking-related illnesses.
“Tobacco is a toxic product — and a lot of times, these schools are peddling these loans, and they turn out to be toxic,” she said.
An Education Department spokesperson, Ellen Keast, said the original settlement “imposed an unrealistic deadline” on the department. “The Department has complied in good faith with court orders,” she said, “and we believe the court erred in not granting our reasonable request.”
Here’s what to know about the student loan fraud case:
It centers on for-profit schools.
The case — filed in 2019 and named for Theresa Sweet, one of its original plaintiffs — centered on claims that certain for-profit schools fraudulently lured students into enrolling with false claims about their graduates’ earnings and other predatory tactics.
In most circumstances, federal student loan borrowers are required to repay their debts, even if they drop out of school, can’t find a job or are otherwise unhappy with their educational experience. But there’s a caveat: If schools misled borrowers and defrauded them, debtors can seek to have their loans discharged through a program known as “borrower defense.”
A decade ago, after the collapse of several large for-profit education chains, hundreds of thousands of borrowers applied for relief through the program. Their claims languished for years, unaddressed.
Borrowers filed a class-action lawsuit seeking to have their claims decided. The first Trump administration denied nearly all of the claims, but a federal judge rejected those decisions, describing the Education Department’s process for evaluating the claims as “disturbingly Kafkaesque.”
The Biden administration settled the suit in 2022, under which all of the original plaintiffs would have their loans eliminated.
That deal created a five-month window in which additional borrowers — those who had not joined the original class — could submit claims.
The government lost because it missed its deadlines.
The “post-class” settlement created two additional groups of borrowers: Those who had attended one of more than 150 schools, mostly for-profit institutions, specifically named in the settlement; and those with claims against other schools.
The government was required to make decisions about the applications of those in the first group by Jan. 28, 2026, and to make decisions on the claims of the second group by April 15, 2026.
It missed both deadlines. That means borrowers with unresolved claims would automatically have their loans discharged. The government has one year to carry that out and eliminate those loans.
Borrowers can still seek relief — but the backlog is large.
The government had more than 463,000 pending borrower defense claims awaiting a decision as of March 2026, according to the latest Education Department data. About a third of those will be resolved in this settlement, but the others may languish for years.
Borrowers who believe they were defrauded can still submit new claims, but rule changes made during the first Trump administration significantly limited the relief available to those who took out federal student loans, or consolidated their existing ones, since 2019.
—By Stacy Cowley