Appeals Court Denies Department of Education Request to Delay Relief in Landmark Student Loan Settlement Case

The 9th U.S. Circuit Court of Appeals has delivered a significant blow to the U.S. Department of Education’s efforts to postpone debt relief for a massive group of student loan borrowers. In a ruling issued last Friday, a three-judge panel rejected the federal government’s request for an 18-month extension to process claims and provide discharges for more than 170,000 borrowers. This decision marks the latest chapter in the long-running Sweet v. Cardona litigation, a case that has come to define the modern struggle over borrower defense to repayment and the accountability of for-profit higher education institutions.

The ruling ensures that the Department of Education must remain committed to the timelines established in a 2022 landmark settlement. For the affected borrowers, many of whom have waited years for financial resolution, the court’s decision represents a final clearing of procedural hurdles. The Project on Predatory Student Lending, which represents the class of borrowers, hailed the decision as a victory for consumer rights and a necessary enforcement of the government’s legal obligations.

The Origins of Sweet v. Cardona

The legal battle began in 2019, during the administration of former President Donald Trump. Originally filed as Sweet v. DeVos (and later Sweet v. Cardona/McMahon), the lawsuit was initiated by borrowers who alleged that the Department of Education was intentionally stonewalling "borrower defense" applications. The borrower defense to repayment is a federal regulation that allows students to seek loan forgiveness if their college or university misled them or engaged in other forms of misconduct in violation of state law.

At the time of the initial filing, the backlog of borrower defense claims had grown to hundreds of thousands. Borrowers argued that the Department of Education, then led by Secretary Betsy DeVos, had essentially frozen the processing of these claims, leaving students in a state of financial limbo. The plaintiffs contended that the delay was not merely administrative but was a policy choice designed to protect for-profit colleges at the expense of defrauded students.

After years of legal maneuvering and a transition to the Biden administration, a settlement was finally reached in June 2022. This settlement was designed to provide a streamlined path to relief for approximately 264,000 borrowers who had pending claims as of the settlement date.

The Structure of the 2022 Settlement

The settlement agreement categorized borrowers into three distinct groups, each with different criteria for relief:

1. The Automatic Discharge Group: This group consisted of roughly 200,000 borrowers who attended one of 151 specific educational institutions. These schools were identified by the Department of Education as having demonstrated "strong signs of substantial misconduct," including misrepresenting job placement rates, transferability of credits, and program costs. Borrowers in this group were granted automatic relief, including full discharge of their federal student loans and refunds of payments already made.

2. The Timely Decision Group: This group included approximately 64,000 borrowers who had filed claims but did not attend one of the 151 listed schools. The settlement required the Department of Education to issue individual decisions on these claims within specific timeframes. If the Department failed to meet these deadlines, the borrowers would receive automatic relief.

3. The Post-Class Applicants: This final group, which is the subject of the recent appeals court ruling, includes borrowers who filed their claims between the announcement of the settlement in June 2022 and its final court approval in November 2022. This group consists of approximately 207,000 students who filed more than 251,000 claims. The settlement promised these applicants either a timely decision or automatic relief if the Department failed to act.

The Department’s Request for Delay

In November 2023, the Department of Education approached the court seeking an 18-month delay in processing the claims for the third group of borrowers. The agency argued that it would be unable to meet the January 28, 2024, deadline for approximately 193,000 of the pending claims.

The Department cited several reasons for its inability to meet the deadline. First, officials claimed that the sheer volume of "post-class" applications was higher than anticipated when the settlement was signed. Second, the Department raised technical concerns regarding "consolidated loans." These are cases where a borrower has combined multiple federal loans into a single loan. The Department argued it was administratively difficult to separate loans eligible for relief under the settlement from those that were not.

The initial presiding judge, William Alsup, denied the request for a delay regarding borrowers from the 151 listed schools but granted a short 2.5-month extension for other claims. Following Judge Alsup’s retirement, the case was handed to Judge Haywood Gilliam Jr., who rejected a further request for reconsideration in February 2024. The Department then took the matter to the 9th Circuit Court of Appeals.

The Appeals Court Ruling

In its seven-page decision, the 9th Circuit panel was critical of the Department of Education’s arguments. The judges noted that the federal agency lacked evidence to support the claim that it was "surprised" by the volume of claims or the complexity of consolidated loans.

The court highlighted that by the time the Department moved for final approval of the settlement in late 2022, it already knew the third group would include roughly 179,000 borrowers. Furthermore, by early 2023, the agency was aware the number had grown to over 205,000. Despite this knowledge, the Department did not formally contest the deadlines or seek a modification of the settlement terms until nearly three years after the initial proceedings and months after the settlement was finalized.

"The record demonstrates that the Department of Education understood the implications of agreeing to the settlement," the panel wrote. The court concluded that the Department’s failure to plan for the administrative workload did not constitute a valid legal reason to deprive borrowers of the relief they were promised under a binding court-approved agreement.

Financial and Social Implications

As of April 2024, the Education Department reported that it had already discharged or refunded approximately $12 billion for nearly 300,000 borrowers under the terms of the Sweet settlement. The recent ruling means that the Department must now move forward with providing relief to the remaining 170,000 borrowers in the "post-class" group without further stalling.

The financial impact of this relief is profound. For many borrowers, these loans have been a burden for over a decade, affecting their ability to buy homes, start families, or save for retirement. The relief often includes not just the discharge of remaining debt, but also the removal of negative marks on credit reports and the refund of payments made toward the fraudulent loans.

Eileen Connor, president and executive director of the Project on Predatory Student Lending, emphasized the human cost of the delays. "Once again, the courts have rejected the Department’s attempts to evade its obligations to borrowers who have waited far too long for the relief they are owed," Connor said. She noted that the decision brings the settlement closer to fulfilling its "promise to every borrower."

Broader Context of Student Debt Relief

The Sweet v. Cardona case exists within a broader, more volatile landscape of federal student debt policy. While this specific case is a settlement resulting from a lawsuit regarding school-specific fraud, it coincides with the Biden administration’s wider efforts to reform the student loan system through programs like the SAVE (Saving on a Valuable Education) plan and the Public Service Loan Forgiveness (PSLF) program.

Unlike the broader $400 billion debt cancellation plan that was struck down by the Supreme Court in 2023, the Sweet v. Cardona relief is grounded in specific statutory authority regarding borrower defense and a negotiated settlement agreement. Because it is a court-ordered settlement, it has proven more resilient to the legal challenges that have plagued other debt relief initiatives.

However, the Department of Education’s attempt to delay the Sweet relief highlights the administrative strain facing the agency. The Department is currently managing the return to repayment for millions of borrowers following the pandemic-era pause, while simultaneously attempting to implement new income-driven repayment plans and process a historic backlog of borrower defense claims.

Conclusion and Future Outlook

The 9th Circuit’s decision effectively ends the Department of Education’s attempts to slow-walk the Sweet v. Cardona settlement. The agency is now under a strict legal mandate to process the remaining claims or grant automatic discharges to the 170,000 affected borrowers.

For the higher education sector, the list of 151 schools involved in the settlement remains a stark reminder of the consequences of institutional misconduct. Many of the schools on the list have since closed, while others continue to operate under heightened scrutiny. The case has also set a precedent for how borrower defense claims must be handled, suggesting that future administrations will find it difficult to ignore or "pocket veto" applications for relief.

As the Department of Education works to meet its obligations, the focus will shift to the speed of implementation. For the 170,000 borrowers awaiting their discharges, the appeals court ruling is more than just a legal victory; it is a long-overdue confirmation that the government must keep its word. The total relief provided under this single settlement is expected to exceed $15 billion once all "post-class" claims are processed, making it one of the largest consumer protection settlements in the history of the U.S. government.