Relief Coming for Sweet v. Cardona Borrowers After Final Settlement Approval

Editor's note: Updated Apr. 17 with further details after the U.S. Supreme Court declined to hear a petition from three schools aiming to stop the settlement.

In February, a federal judge cleared the last major remaining legal barrier blocking nearly 300,000 student loan borrowers who were misled by their schools from receiving $6 billion worth of debt relief through the class action lawsuit Sweet v. Cardona.

"The relief provided by this settlement (financial and otherwise) will allow plaintiffs to breathe easier, sleep easier, repair their credit scores, take new jobs, enroll in new educational programs, finish their degrees, get married, start families, provide for their children, finance houses and vehicles, and save for retirement," wrote U.S. District Judge William Alsup in his Feb. 24 ruling, which denied a request to suspend the relief rollout.

The ruling affirms a November final decision that had been derailed by an appeal, and it marks a near-end to the yearslong Sweet v. Cardona saga. Borrowers who argued they’d been defrauded by one of about 150 mostly for-profit colleges brought the lawsuit. The Education Department has begun emailing affected borrowers who are slated to receive relief.

Only one last potential roadblock remains. Three schools involved in the case — American National University, Everglades College, Inc. and Lincoln Educational Services, Inc. — have unsuccessfully attempted to delay or block the relief rollout three separate times. Most recently, on Apr. 13, the U.S. Supreme Court declined a petition filed by the three schools. These schools may continue to appeal the decision through another route in the U.S. Court of Appeals for the Ninth Circuit. The Education Department can discharge loans under the settlement terms in the meantime.

Borrower defense plagued by backlogs

These anticipated discharges are only the latest in a series of efforts by the Department of Education to clear application backlogs and grant relief to borrowers whose schools defrauded them. As of November, approximately 443,000 borrowers have pending borrower-defense applications, according to the lawsuit.

Borrower defense offers loan discharge to borrowers whose schools — mostly for-profit — misrepresented such things as graduation and employment rates, financial aid or even school classroom resources. The program launched in 2015, but discharges slowed to a near-complete halt during the previous administration due to rules changes and inaction.

“If, hypothetically, the Department’s Borrower Defense Unit had all 33 of its claim adjudicators working 40 hours a week, 52 weeks a year (no holidays or vacation), with each claim adjudicator processing two claims per day, it would take the Department more than twenty-five years to get through the backlog,” wrote Alsup in his Sweet v. Cardona ruling.

The Biden administration has prioritized untouched borrower defense claims, resulting in about $8 billion in discharges through the program since January 2021, federal data shows. This latest decision bumps up the total amount of borrower defense discharges to more than $14 billion.

Even before the Sweet v. Cardona settlement, federal data show that total federal student loan forgiveness under all programs had reached $38 billion approved for 1.75 million borrowers. This includes the more than $14 billion in borrower defense and closed school discharges, as well as:

• More than $14 billion under the Public Service Loan Forgiveness program.

• More than $9 billion to borrowers who are totally and permanently disabled.

Billions for borrowers at for-profit schools

Since 2021, new reviews of claims have resulted in billions in discharges for millions of borrowers. That includes students who attended for-profit schools like DeVry University and the now-shuttered ITT Technical Institute.

The department also started changing regulations, such as rescinding calculations for partial relief done under the previous administration. That resulted in full relief to 72,000 borrowers for a total of $1 billion, according to federal data.

The Education Department also started doing group discharges without requiring applications in 2022 when it got rid of $238 million in student loan debt for 28,000 borrowers who attended Marinello Schools of Beauty.

And the largest discharges happened recently through a $5.8 billion group discharge of federal student loans borrowed by 560,000 borrowers who attended Corinthian Colleges since its founding in 1995 through its closure in April 2015.

Flaws in the program and change to come

There are also more changes coming to the borrower defense program.

In July 2022, the Biden administration proposed new regulations that would impact borrower defense, among other programs. The changes include establishing categorical standards for misconduct, under which a borrower could file a claim such as “aggressive and deceptive recruitment practices” or “substantial misrepresentations.”

Additional proposals would allow for group applications, eliminate timing limitations on filing a claim, make colleges cover discharge costs and create a reconsideration process for borrowers denied full discharge.

The new regulations are expected to go into effect July 1, 2023.

These additional changes are needed as some borrowers have filed claims the department never addressed — in one group claims case, it's been six years, according to the National Consumer Law Center.

It’s also unclear how many borrowers are actually receiving loan discharges, says Aaron Ament, president of Student Defense, a litigation and advocacy nonprofit.

“We are getting a number of people contacting us saying they got an email nine months ago approving their borrower defense claim, but the discharge has not been effectuated,” says Ament. “A lot of them are getting denied mortgages or can’t rent an apartment because it’s still on their credit report — that loan still shows up.”

How you can get relief under Sweet v. Cardona

The Sweet v. Cardona lawsuit was first brought by borrowers who had been waiting years for the Education Department to process or approve their borrower defense applications.

The final ruling affects nearly 300,000 borrowers who had a pending borrower defense application as of June 22, 2022. This group, or “class,” is split into two categories, each with different outcomes:

• Group one: Those who borrowed to attend a school listed in the lawsuit. They are eligible for “full” and “automatic” discharge of the entire value of their loans, including refunds for payments already made. This group consists of about 200,000 borrowers, or 75% of the class.

• Group two: Those who submitted borrower defense applications, but did not attend one of the schools listed in the lawsuit. They’ll receive individual decisions from the Department of Education on a rolling basis. This group consists of about 64,000 borrowers, or 25% of the class.

You could still be in luck if you applied after the June 22, 2022 settlement execution date, but before the Nov. 16 final ruling. The Department of Education plans to send these so-called “post-class applicants” an individual decision within three years — and if the Department misses that deadline, those borrowers will get full relief.

One last legal challenge still hangs over final court approval for borrowers who attended three of schools involved: American National University, Everglades College, Inc. and Lincoln Educational Services, Inc. The Department of Education has the green light to discharge eligible loans while these schools attempt to appeal the decision.

Individual borrowers who are eligible for relief can expect to receive email or mail notifications from the Department of Education informing them of their eligibility starting in late April 2023.