450K Borrowers Win Debt Relief After Years of Limbo: 'I Should Be Happy, but I'm Really Angry'

Roughly 450,000 Americans who say their colleges lied to them are having their federal student loans cancelled, years after they first asked. Among them is Jessica Feindt, who lives near Flint, Michigan: she says she feels she should be happy, and mostly she feels anger at what the wait cost her family. The Ninth Circuit Court of Appeals removed the last obstacle on 17 July 2026, when it rejected the United States (US) Education Department's latest bid to delay a settlement known as Sweet v. McMahon.

No one in Feindt's family had studied beyond school before she signed up at the University of Phoenix, which advertised heavily around Flint. A recruiter assured her that Michigan graduate schools would accept its psychology degree; she borrowed federally on that basis, and the promise proved false; her claim went in during 2022. 'I'm really angry about all the years that my family suffered under these loans,' she told the American broadcaster NPR when the balance cleared.

From Sweet v. DeVos to Sweet v. McMahon

The case began in June 2019, when the Project on Predatory Student Lending (PPSL) sued over the US borrower defence rule, which cancels federal loans obtained through a school's deceit. More than 210,000 applications were sitting undecided at the time, a queue that had been building since the 2015 collapse of Corinthian Colleges. The 2022 settlement promised automatic cancellation for about 196,000 people from 151 listed schools, plus streamlined reviews for roughly 100,000 more. Anyone who applied in the five months before final approval that November was covered too, owed a decision by a fixed date.

That last group swelled past every forecast, with more than 250,000 applications arriving in under five months. The decision date was 28 January 2026, and by then the department had managed only about 60,000 of them, as the chart below shows.

Missing that date carried a price the government had accepted in writing: everyone still waiting became entitled to full relief automatically. The department asked for 18 more months, arguing that automatic payouts on unexamined claims shortchange taxpayers, and lost at every level. The appeals judges wrote that the department 'voluntarily undertook the obligations outlined in the Settlement.'

A spokesperson said the timetable 'imposed an unrealistic deadline.' The plaintiffs count differently: PPSL puts the settlement's value above $23B (£17.1B), more than the US government has ever paid to end a class action. Its executive director, Eileen Connor, told NPR of one borrower whose balance climbed from about $250,000 (£185,500) to roughly $400,000 (£296,700) while her claim sat open.

Automatic Relief With No Federal Tax Bill

Nobody covered needs to apply again. Full relief means the balance goes, payments made toward those loans come back, and the negative line disappears from credit reports. Final notices went out by mid-June, with delivery due within a year of each, so the last possible date is 15 June 2027.

Balances can jump around while servicers unwind the accounts, which PPSL calls a normal sign the cancellation is in motion, and progress is visible on a borrower's StudentAid.gov profile. The timing helps too, because most debt cancelled from 2026 onwards is taxed and this kind is not, as the graphic below breaks down.

The change flows from the American Rescue Plan Act, whose pandemic-era shield kept nearly all forgiveness tax-free until 31 December 2025. Write-offs under income-driven repayment plans now count as ordinary income.

Borrower defence discharges sit outside that shift, protected by Internal Revenue Service (IRS) guidance dating back to 2015. Sweet recipients therefore owe no federal income tax on the sums, though several states run their own rules.

The door is closed to newcomers: eligibility turned on having applied by mid-November 2022, later claims join the ordinary borrower defence queue, and private loans were never included. The department has not said whether it will go to the Supreme Court, though the justices already turned away a linked challenge from a college in February. PPSL told the government in June that more than 1,000 class members are still owed relief past deadlines of their own.

For everyone else inside the settlement, the arithmetic has finally flipped. After seven years and three education secretaries, the waiting is measured in months now, not administrations.