Federal Court Clears $23B Student Debt Cancellation for 170,000

Court Clears the Way for Long-Delayed Relief

For years, thousands of people who said they were tricked by their colleges have been stuck in limbo. They applied to have their federal student loans wiped out under a program called borrower defense to repayment.

The Education Department was supposed to process those claims. Instead, the borrowers had to sue. That lawsuit, Sweet vs. McMahon, started in 2019.

In 2022, a settlement was reached under the Biden administration. But then the department requested additional delays from the courts. This week, a federal court denied that request.

The court's ruling covers individuals who submitted applications from June 23 through November 15, 2022. That group of 170,000 people will now get automatic relief.

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The Biggest Settlement of Its Kind

The Project on Predatory Student Lending, or PPSL, has been fighting this case on behalf of borrowers. According to the organization, this deal is the biggest class-action settlement ever in the U.S. In total, the settlement covers more than half a million borrowers and wipes out roughly $23 billion in debt.

Eileen Connor, the organization's president and executive director, made a point of addressing both sides of the story. "The work isn't over: To anyone out there struggling with predatory student debt, we see you," she said in a statement. "And to anyone out there looking to exploit students, we see you too."

The settlement only applies to people who filed claims within that five-month window in 2022. But the court decision forces the department to process those claims now instead of waiting longer. PPSL noted that some affected borrowers are already noticing changes in their loan balances, an encouraging indication that loan servicers are handling the discharges.

What This Means for Your Finances

The Education Department continues to develop broad modifications to student-loan repayment plans while also confronting various court cases. Several advocacy organizations have taken the department to court over its new limits on borrowing for graduate programs, and another lawsuit seeks to halt the mandatory move of borrowers from the SAVE income-driven repayment plan.

The bottom line: student debt policy is still very much in flux. The court just made one piece of it move faster. If you carry federal student loans, keep an eye on new court rulings and rule changes.

They can shift your monthly payment or even your total balance without warning. And if you ever suspect your school misled you, the borrower defense program is still the tool to use.

A reporter for Business Insider covers these issues. She can be reached at [email protected].

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