Why Student Borrowers Waited Years for Debt Relief
Until a recent settlement, victims of predatory colleges were left in limbo
Jessica Feindt was one of the first in her family to go to college. She lives near Flint, MI, and in the early 2010s ads for the University of Phoenix seemed to be everywhere she looked — “on every radio station, every newspaper,” she says. “It was everywhere.” A recruiter told her, more than once, that a psychology degree from the school would be accepted by the Michigan graduate programs she hoped to apply to next. She enrolled in the University of Phoenix, took out federal loans to pay for it, and graduated in under four years. When she applied to the Michigan graduate programs, they wouldn’t recognize her degree.
Feindt filed a claim in 2022 under a federal protection called “borrower defense to repayment,” telling the Department of Education (ED) that her school had lied to her. Federal student debt is famously hard to shed. Not liking your school isn’t enough to erase it, and neither is dropping out or failing to land the job you were promised. But borrower defense is the exception: if a school lied to you or defrauded you, you can ask the ED to discharge the federal loans you took out to attend it.
The problem was getting the government to offer this protection that Congress had provided. After several large for-profit chains collapsed in the mid-2010s, hundreds of thousands of student borrowers filed claims — and then waited, sometimes for years, while the applications sat.
That led to a class-action lawsuit, filed in 2019 and now known as Sweet v. McMahon, that covered 450,000 borrowers. It has become the largest-ever settlement against the US federal government and the largest class action settlement in American history — $23 billion and counting in canceled federal student debt. On July 17, the Ninth Circuit rejected the ED’s latest attempt to buy more time on a batch of unresolved claims.
One woman told the court her borrower-defense application, filed in June 2022, went unaddressed for years while interest compounded on the loan she was asking to have erased. Her balance climbed from roughly $250,000 to nearly $400,000 before the case was resolved. She had asked the government to determine whether she’d been cheated into taking on the debt in the first place, and instead she watched it grow.
The eye-popping $23 billion settlement obscures a more urgent question: How did nearly half a million Americans end up owing the federal government billions of dollars for loans to pay for schools they say lied to them — and why did the same government that financed those schools take years to help the borrowers left holding the bill?
How the trap worked
Many of these borrowers weren’t 18-year-olds who took out $150,000 to attend an elite university and later found the degree wasn’t worth it. They were recruited with something concrete: the promise of a specific job, a specific salary, a credential that would transfer.
Feindt’s experience was hardly unique. Across the nearly half a million borrowers covered by the settlement, the allegations followed a familiar pattern — promises of stable careers, higher salaries, and transferable credits, followed by large debts, credentials employers didn’t respect, credits that didn’t transfer, and in some cases no degree at all. The tactics were consistent: saturation advertising and aggressive recruiting aimed at people seeking economic mobility, education sold less as education than as a guaranteed outcome.
The settlement covers more than 150 mostly for-profit schools, and not every borrower experienced identical misconduct. But the business model was widespread, and the government was both the regulator and the banker.
In a normal commercial market, a company that sells a bad product eventually loses customers and suffers for it. Higher education financed by federal loans doesn’t work that way: the student picks the school, the federal government lends the student the money, the school gets paid up front, and the borrower owes the government — not the school — regardless of what happens next.
That structure meant a school could keep collecting federal dollars whether or not the promises its recruiters made ever came true, or were ever likely to. A 2012 investigation by the Senate Committee on Health, Education, Labor, and Pensions found that for-profit colleges were collecting more than $30 billion a year in federal funds — about a quarter of all Department of Education student aid, and nearly half of military and veterans’ education benefits — while enrolling a much smaller share of students overall. It also found that more than half the students who enrolled at the schools the committee examined in 2008–09 had withdrawn by mid-2010. The federal loan system, in other words, didn’t just fail to catch predatory schools. It funded them.
But when many of those students made claims for borrower defense, the ED, then run by Betsy DeVos, took a much narrower view of who should qualify and how much relief they should receive, arguing that borrowers should have to demonstrate financial harm rather than automatically have their entire loans erased. While the department rewrote the rules, a backlog of nearly 200,000 claims piled up without decisions.
In 2019, borrowers sued the DeVos Department of Education, arguing that the first Trump administration had effectively stopped processing borrower-defense claims and wrongly denied others without reviewing their merits; a federal judge later described the department’s process for evaluating claims as “disturbingly Kafkaesque.”
In 2022, under Biden, the department settled the suit: roughly 200,000 borrowers tied to a list of more than 150 schools got relief, and the ED agreed to court-enforceable deadlines for resolving the rest. But implementation slipped. Eileen Connor, president of the Project on Predatory Student Lending, which had brought the lawsuit, would later call the pace of delivery a “years-long failure” by the Biden administration.
Then the second Trump administration inherited the case and asked the courts for another 18 months to work through a large batch of remaining applications.Trump’s ED told the courts the volume of post-settlement applications was far larger than anticipated and that it needed time to determine who actually deserved relief rather than handing out what it called a “substantial windfall at taxpayer expense.”
The courts said no. An agency spokesperson, Ellen Keast, said that the ED wanted to do right by the families but the settlement had “imposed an unrealistic deadline” on the department.
It’s a legitimate question whether the government should have to wipe out someone’s debt purely because the bureaucracy moved too slowly. But that’s not quite what happened here. The government had agreed to specific deadlines as part of a legal settlement, and the contract said unresolved claims would be discharged automatically if it missed them. And the government did miss them. The court’s answer was essentially that an agency can’t accept terms, blow through them, and then ask a court to rewrite the deal years later because compliance turned out to be difficult.
While borrowers’ applications sat, interest kept accruing, and people described being unable to qualify for mortgages or car loans, delaying starting families, or putting off medical care while carrying debt for an education they say was fraudulently sold to them.
Jessica Feindt knows that particular kind of waiting firsthand. Less than a week before she spoke to a reporter this summer, she logged in to her federal loan account and found her balance gone. “I feel like I should be happy,” she said, “but I’m really angry about all the years that my family suffered under these loans.”
The average balance discharged under the settlement has topped $48,000; borrowers eligible for refunds have typically gotten back more than $15,000. In Connor’s words: “It makes clear that the federal government cannot simply disregard borrowers’ rights and its own legal obligations without consequence.”
What’s next for borrowers
Washington is cleaning up one student-lending failure at the same moment it is rewriting the rules for how the next generation borrows. The government has lowered its federal borrowing caps and also recently eliminated the Grad PLUS loan program for new borrowers, which allowed graduate and professional students to borrow directly from the Department of Education to cover costs of attendance after exhausting standard federal loans. Those moves will push some students who need additional financing toward private lenders instead.
That means the end of Sweet v. McMahon arrives at the beginning of another experiment.
Beth Akers of the American Enterprise Institute argues the old system had its own dangerous flaw: the government could lend enormous sums without ever weighing whether a borrower would earn enough to repay them, while private lenders lost money on defaults and so had an incentive to assess repayment risk before they lent. Consumer advocates see it differently — private loans come with far fewer federal protections, oversight is fragmented across states, interest rates can run much higher, and private lenders already generate a share of consumer complaints to the Consumer Financial Protection Bureau well out of proportion to their share of the market.
That debate won’t be resolved anytime soon. But it’s the next version of the same underlying question: Who bears the risk when the system goes wrong?
 | A guest post by
|