Sweet v. Cardona Settlement Approves $6 Billion in Automatic Debt Cancellation for 200,000 Students Defrauded by For-Profit Colleges, Ending Years of Trump-Era Delays

On June 24, 2022, the U.S. Department of Education under Secretary Miguel Cardona reached a landmark settlement in the class action lawsuit Sweet v. Cardona (originally filed as Sweet v. DeVos), agreeing to automatically cancel approximately $6 billion in federal student loans for roughly 200,000 borrowers who had attended any of 151 predatory for-profit colleges and who had filed borrower defense to repayment applications that the Trump Administration under Secretary Betsy DeVos had blocked, delayed, or arbitrarily denied between 2017 and 2021. The settlement, preliminarily approved by U.S. District Judge William Alsup in June 2022 and granted final approval in November 2022, ended years of systematic obstruction of fraud relief during the Trump Administration and established that when schools engage in widespread fraud, affected students are entitled to automatic full loan discharge rather than years-long individual application reviews that DeVos had used to deny or delay relief. The settlement covered students from collapsed for-profit chains including Corinthian Colleges, ITT Technical Institute, and the Art Institutes, as well as students from dozens of other for-profit schools where systematic fraud had been documented, providing the largest class-based student debt cancellation in U.S. history at that time and vindicating years of advocacy by the Debt Collective, Project on Predatory Student Lending, and defrauded student borrowers who had organized to demand relief.

The lawsuit was originally filed in 2019 as Sweet v. DeVos by a class of student borrowers represented by the Project on Predatory Student Lending at Harvard Law School. The plaintiffs challenged the Trump Administration’s systematic refusal to process borrower defense to repayment applications, its arbitrary denials of relief even when fraud was documented, and its illegal rewriting of borrower defense regulations to make relief nearly impossible to obtain. Under the borrower defense to repayment provision of the Higher Education Act, students who were defrauded by their schools are entitled to have their federal student loans cancelled, since the loans were obtained based on the schools’ fraudulent misrepresentations and students did not receive the education they were promised and paid for. The Obama Administration had developed regulations in 2016 to implement borrower defense relief systematically, particularly after the Corinthian Colleges collapse created more than 100,000 borrower defense applications from defrauded students.

However, when Betsy DeVos became Secretary of Education in 2017, she immediately moved to block borrower defense relief. DeVos delayed implementation of the 2016 borrower defense regulations, stopped processing pending applications, developed new regulations that made relief dramatically harder to obtain, and when forced by courts to process applications under the Obama-era rules, granted only partial relief rather than full loan cancellation even when fraud was clearly proven. Between 2017 and 2021, more than 200,000 borrower defense applications from students who had attended predatory for-profit colleges sat in limbo, with applicants receiving no decisions, no relief, and no explanation for delays that stretched for years. Many applicants continued making loan payments or suffered default consequences while waiting for relief that DeVos had no intention of providing.

The Sweet v. DeVos lawsuit alleged that DeVos’s obstruction violated the Administrative Procedure Act, violated due process by failing to provide timely decisions on applications, and violated the Department of Education’s statutory obligation to protect students from fraud. The lawsuit sought court orders requiring the Department to process applications promptly under the Obama-era rules and to provide full relief when fraud was documented. As the litigation proceeded, evidence emerged that DeVos’s delays and denials were not based on good-faith legal interpretations but rather on ideological opposition to student debt relief and on political alignment with the for-profit education industry. Internal Education Department emails obtained through discovery showed officials discussing how to minimize borrower defense relief regardless of the merits of applications, how to create bureaucratic obstacles to delay processing, and how to structure partial relief formulas to deny as much relief as possible.

When the Biden Administration took office in January 2021 and Miguel Cardona replaced Betsy DeVos as Secretary of Education, the Department of Education reversed course on borrower defense. The Department acknowledged that DeVos’s obstruction had been unlawful, began processing applications under the Obama-era rules, and entered into settlement negotiations with the Sweet plaintiffs. The June 2022 settlement represented a comprehensive resolution that would provide automatic full discharge to the entire class of borrowers rather than continuing individual application reviews that would take years to complete.

Under the settlement terms, approximately 200,000 borrowers who had attended any of 151 identified for-profit colleges and who had borrower defense applications pending as of the settlement date would receive automatic full cancellation of all federal student loans taken out to attend those schools. The 151 schools on the list included all the major collapsed for-profit chains where fraud had been extensively documented—Corinthian Colleges and all its brands (Everest, Heald, WyoTech), ITT Technical Institute, the Art Institutes, Westwood College—as well as dozens of smaller for-profit colleges where investigations had found systematic fraud, deceptive marketing, falsified job placement rates, or other misconduct warranting borrower defense relief.

The settlement also established that the Education Department would presume that borrower defense applications from students who attended the 151 schools should be approved based on findings of widespread fraud at those institutions, shifting the burden from individual borrowers to prove they were personally defrauded to a presumption of fraud for all attendees. This presumptive approval process was crucial because it recognized the reality that when a school engages in systematic fraud affecting its recruitment, marketing, and operations over extended periods, essentially all students who attended based on the fraudulent representations are entitled to relief rather than having to prove individual reliance on specific misrepresentations. The Corinthian and ITT cases had demonstrated that fraud was often school-wide affecting all programs and all students, making individual application review an inefficient barrier to relief rather than a meaningful quality control mechanism.

For borrowers receiving relief under the settlement, the impact was life-changing. Many had been struggling for years with student debt from credentials that had proven worthless, had been subjected to wage garnishment and tax refund seizures due to defaults, had suffered credit damage that prevented them from buying homes or cars, and had experienced the psychological trauma of believing they had failed when in fact they had been systematically defrauded. The automatic loan cancellation eliminated tens of thousands of dollars of debt for each borrower, stopped collection actions, required credit report corrections to remove negative information related to the discharged loans, and in some cases triggered refunds of payments that borrowers had made on loans after their borrower defense applications were filed.

However, the relief under the Sweet settlement, while substantial, did not make borrowers completely whole. Borrowers who had made loan payments before filing borrower defense applications did not receive refunds of those payments—only payments made after application filing were refundable. Borrowers who had used private loans to attend the fraudulent schools received no relief for those private debts, only for federal loans. Borrowers who had already paid off their loans before the settlement received no compensation for having paid for worthless credentials. And the opportunity costs—years spent in fraudulent programs, careers delayed or derailed, psychological harm—were never compensated. The settlement provided crucial relief but could not restore the years that DeVos’s obstruction had cost or fully remediate the harm that for-profit fraud had inflicted.

Three for-profit colleges—Lincoln Educational Services Corporation (operating Lincoln Technical Institute), American National University, and Everglades College—intervened in the lawsuit to challenge their inclusion on the list of 151 schools whose students would receive automatic relief. The colleges argued that their inclusion on the list harmed their reputations and that they should have been allowed to defend against fraud allegations before their students received relief. However, both the district court and the Ninth Circuit Court of Appeals rejected the colleges’ intervention, ruling that the schools did not have a “significantly protectable interest” that would allow them to block the settlement. The courts noted that the settlement was between the Department of Education and defrauded students, that the schools were not parties to the borrower defense applications or the lawsuit, and that any reputational harm to the schools was outweighed by the students’ rights to relief from fraud.

The appellate court’s decision rejecting the for-profit colleges’ intervention was significant because it established that schools cannot obstruct student debt relief by claiming reputational harm. If schools had been allowed to intervene and litigate against borrower defense findings, student relief would be delayed for years by protracted legal battles where schools with substantial legal resources could outspend individual student borrowers and could use procedural tactics to delay relief indefinitely. The court’s ruling that student relief could proceed without giving schools a veto power was essential to making borrower defense an effective remedy rather than an empty promise that schools could block through litigation.

The Sweet settlement also had implications for future borrower defense processing. The settlement established streamlined procedures for processing applications from students who attended other predatory schools not on the initial 151-school list, with the Department committing to complete processing of all pending applications by specific deadlines. The settlement created accountability mechanisms to ensure the Department actually processed applications rather than allowing them to languish as DeVos had done, including monitoring by the court and reporting requirements. These procedural reforms were designed to prevent future administrations from obstructing borrower defense relief as DeVos had done, though the ultimate effectiveness would depend on whether future secretaries of education honored the settlement terms or sought to evade them.

The settlement vindicated the organizing and advocacy of the Debt Collective and other student debt activists who had been demanding comprehensive borrower defense relief since the Corinthian collapse in 2015. The Debt Collective, formed by Corinthian debt strikers who had publicly refused to repay loans for fraudulent education, had spent years building a movement of defrauded student borrowers demanding justice. The organization had provided legal and organizing support to thousands of borrowers filing defense applications, had publicized the Trump Administration’s obstruction, had pressured the Biden Administration to provide relief, and had supported the Sweet litigation. The settlement represented a victory for grassroots organizing demonstrating that collective action and sustained political pressure could overcome institutional resistance to debt relief.

However, the settlement also revealed the fragility of borrower protections that depend on executive branch enforcement. The Obama Administration had developed borrower defense regulations to protect students, the Trump Administration had blocked implementation and obstructed relief, and the Biden Administration had restored protections and provided relief through the Sweet settlement. This regulatory yo-yo demonstrated that student protections were vulnerable to political changes and that comprehensive statutory reforms were needed to create durable protections that could not be eliminated by hostile administrations. Without such reforms, future administrations could repeat DeVos’s obstruction, denying relief to new cohorts of defrauded students.

The $6 billion in relief provided by the Sweet settlement represented only a portion of the total student debt from for-profit college fraud. The settlement covered students who had filed borrower defense applications by the settlement date, but many students who had been defrauded never filed applications because they were unaware of the borrower defense remedy, because they believed they would not be believed or that applications would be futile, or because the application process seemed too complicated or intimidating. The settlement provided relief to identified victims who had actively sought relief, but did not capture the full scope of for-profit fraud harm which likely affected millions of students over decades and cost taxpayers tens of billions in defaulted loans and wasted student aid.

The settlement also highlighted the inadequacy of financial accountability for the for-profit colleges that had perpetrated the fraud. While students received loan forgiveness, the schools and their executives faced limited consequences. Most of the schools on the 151-school list had already closed or declared bankruptcy, making them judgment-proof. Executives who had presided over fraudulent operations had largely escaped with personal wealth intact and faced no criminal prosecutions. The settlement represented accountability in the form of student relief, but not accountability in the form of punishment or deterrence that might prevent future fraud. Without criminal prosecutions or other mechanisms to hold executives personally liable, the message to the for-profit industry was that fraud might eventually lead to loan forgiveness for victims but would not lead to personal consequences for perpetrators.

The Sweet settlement established important precedents for class-based debt relief demonstrating that when fraud is widespread and systematic, individual adjudication of thousands of applications is unnecessary and counterproductive. The settlement showed that group discharge based on findings of institutional fraud is both legally permissible and administratively efficient, creating a model for future relief efforts. The Biden Administration would later use similar reasoning to provide automatic relief to all Corinthian Colleges borrowers (an additional $5.8 billion affecting 560,000 students announced two weeks before the Sweet settlement) and to other groups of defrauded students, building on the Sweet settlement’s precedent for class relief.

For the legal advocates at the Project on Predatory Student Lending who had filed and litigated the Sweet case, the settlement represented vindication of years of work on behalf of defrauded students. The Project had been documenting for-profit college fraud, supporting borrower defense applications, and litigating for student relief since the Corinthian collapse. The Sweet settlement demonstrated the power of strategic litigation to achieve systemic relief for thousands of victims simultaneously rather than seeking individual relief one case at a time. The settlement also demonstrated the importance of having dedicated legal advocates willing to take on multi-year litigation against the federal government on behalf of student borrowers who lacked resources to pursue relief on their own.

The timing of the settlement—coming just months after the Biden Administration took office and replaced DeVos with Cardona—illustrated how quickly relief could be provided when political will existed. The same applications that DeVos had blocked for four years were resolved within eighteen months under the Biden Administration through the settlement. This rapid resolution demonstrated that the years of delay under DeVos were purely political obstruction rather than necessary administrative processing time. The students who had waited years for relief from 2017-2021 had suffered years of unnecessary financial hardship and stress because DeVos prioritized for-profit industry protection over student protection—harm that was entirely preventable and entirely the result of political decisions to obstruct legally required relief.

The Sweet settlement stands as one of the most significant student debt relief actions in U.S. history, providing $6 billion in automatic cancellation to 200,000 defrauded borrowers and establishing precedents for streamlined class-based relief that would enable subsequent debt cancellation for hundreds of thousands of additional borrowers. The settlement demonstrated that comprehensive relief from for-profit college fraud is possible when the Department of Education is controlled by officials committed to student protection rather than by industry insiders committed to protecting for-profit colleges from accountability. The settlement vindicated years of student organizing and advocacy, proved that grassroots movements could achieve concrete policy victories against powerful opposition, and provided crucial relief to thousands of borrowers who had been exploited by systematic fraud that regulatory failures had allowed to continue for decades.