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• The Supreme Court denied review of the $6 billion Sweet settlement on Feb. 23, and a federal judge rejected the Education Department’s request for more time on Feb. 24 — clearing the way for automatic discharges
• More than 170,000 borrowers who attended predatory for-profit colleges are now legally entitled to full loan forgiveness, refunds of prior payments and credit report corrections
• The Education Department filed an appeal within hours of the ruling but has not received a stay — meaning discharges are proceeding under court order

WASHINGTON, DC (TDR) — Two federal courts delivered back-to-back victories for student loan borrowers this week, ordering the Department of Education to proceed with automatic discharges for an estimated 170,000 or more federal student loan borrowers who attended schools found to have engaged in fraud and misconduct.

The rulings involve two separate cases that together represent the largest wave of court-ordered student loan relief since the Biden administration’s broad forgiveness plan was struck down by the Supreme Court in 2023. They also expose an institutional pattern that has spanned three administrations: the government promising borrowers relief, missing its own deadlines, then asking courts for more time.

“For nearly a decade, the AFT has fought for the rights of student loan borrowers to be freed from the shackles of unjust debt — and today, a huge part of that affordability fight was vindicated.” — Randi Weingarten, AFT President

What The Courts Decided

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Case 1: Sweet v. McMahon (Supreme Court, Feb. 23)

The U.S. Supreme Court denied certiorari on a petition filed by Everglades College, Inc. — a private institution that had intervened to challenge the entire $6 billion Sweet settlement. The denial means the 2022 settlement, which covers borrowers who attended 151 schools on an “Exhibit C” list of institutions found to have engaged in substantial misconduct, is now legally final and beyond challenge.

Case 2: Sweet v. McMahon (Federal District Court, Feb. 24)

CLICK HERE TO READ MORE FROM THE THE DUPREE REPORT

One day later, Judge Haywood Gilliam of the Northern District of California denied the Education Department’s second motion to delay loan discharges for post-class applicants. The department had asked for an extension through July 2027 — an 18-month delay — arguing that limited staff (37 attorneys processing approximately 1,500 applications per month) made the January 28, 2026 deadline impossible to meet.

Judge Gilliam rejected that argument, noting the department had known since September 2022 that approximately 179,000 borrowers were in the post-class applicant group and “waited until the eleventh hour” to seek relief. His order ended with language rarely seen from a federal bench: “No further Rule 60(b) motions will be entertained.”

Three Promises, Three Broken Deadlines

The court’s frustration reflected a documented pattern. According to Judge Gilliam’s Feb. 24 order, the Education Department’s attorneys made specific, on-the-record commitments at three separate hearings in 2025:

March 13, 2025: The department told the court it was “committed to providing full settlement relief” and “committed to honoring the settlement agreement.”

Subsequent hearings: The department repeatedly assured the court that borrowers would receive timely decisions on their applications.

Reality: In the five weeks between Judge William Alsup‘s December 11 denial of the first extension request and the department’s second delay motion on January 22, fewer than 1% of the 169,900 pending applications were adjudicated.

The Project on Predatory Student Lending, which litigated the case on behalf of borrowers, called the department’s request for more time a claim with “no justification.”

What Borrowers Get — And The Tax Trap Nobody’s Talking About

For qualifying borrowers, “full settlement relief” means three things: automatic discharge of federal student loans, refunds of all payments made, and correction of credit reports to remove the discharged debt. The Education Department must notify eligible Exhibit C post-class applicants by March 29, 2026, with relief delivered within one year of that notification.

Separately, the AFT v. Department of Education settlement — the second case that generated positive results — has already produced concrete outcomes. The Trump administration agreed to process IDR and PSLF discharges under court order, with 18,160 PSLF discharges issued in January 2026 alone and another 20,000 teachers, nurses, firefighters and public service workers receiving IDR debt cancellation.

But there’s a critical detail most coverage omits. Under the American Rescue Plan Act, all student loan discharges were federally tax-free through December 31, 2025. Republican lawmakers did not extend this relief in the “One Big, Beautiful Bill Act.” That means borrowers whose forgiveness is processed in 2026 or later could face a “tax bomb” — the IRS treating tens or hundreds of thousands of dollars in cancelled debt as taxable income.

The AFT settlement addressed this for borrowers who qualified for discharge in 2025 but whose processing was delayed into 2026 — the department agreed to use the eligibility date, not the processing date, for tax purposes. But borrowers who actually become eligible in 2026 have no such protection.

“These people should be getting their notices in February. In fact, we have several clients who got the ‘golden email’ this month.” — Nancy Nierman, Education Debt Consumer Assistance Program

The Appeal — And What It Doesn’t Mean

The Education Department filed a notice of appeal to the Ninth Circuit on the same day Judge Gilliam issued his ruling. But an appeal is not an automatic stay. Unless the appeals court separately issues a stay — which had not happened as of publication — automatic discharges proceed under the existing court order.

Kevin Thompson, CEO of 9i Capital Group, told Newsweek that for some borrowers the stakes are deeply personal: “Some of these individuals have gone 3 years waiting for the outcome and have planned their lives around how this may pan out.”

Meanwhile, an additional 626,000 borrowers remain stuck in the income-driven repayment processing backlog, down from nearly 1.4 million in July but still representing hundreds of thousands of people waiting for the relief the government promised them.

The institutional pattern cuts across party lines. The Obama administration created the Borrower Defense program. The first Trump administration froze processing under Secretary Betsy DeVos. The Biden administration negotiated the settlement. The second Trump administration, under Secretary Linda McMahon, missed the deadline and is now appealing. Three administrations, one consistent result: borrowers wait.

When borrowers who attended schools found to have committed fraud have been waiting years for relief that both parties’ administrations promised — and the government’s own attorneys assured a federal judge would be delivered — is the problem one administration’s failure, or a system that was never designed to prioritize the people it was supposed to protect?

Sources

This report was compiled using information from Forbes, CNBC, Newsweek, the Project on Predatory Student Lending, the American Federation of Teachers, Student Loan Planner, Get Out of Debt, and court filings in Sweet v. McMahon, Case No. 3:19-cv-03674 (N.D. Cal.) and AFT v. U.S. Department of Education.

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