$23 Billion Settlement Could Forgive Debt for 450,000 Student Loan Borrowers

A $23 billion class-action settlement with the US Department of Education could result in debt forgiveness for as many as 450,000 student loan borrowers, following claims that dozens of schools engaged in significant institutional misconduct.

What borrowers are alleging

The advocacy group behind the original 2019 lawsuit argues the implicated schools misled students with false promises — about expected post-graduation earnings, the transferability of academic credits, and career stability — that did not hold up in practice, leaving borrowers with debt for an education that failed to deliver what was promised.

Where this sits among other 2026 loan changes

This settlement is separate from the broader repayment-plan overhaul already reshaping federal student loans this year, including the new Repayment Assistance Plan (RAP) and the wind-down of SAVE, PAYE and ICR plans. It targets a specific, narrower group — borrowers at named schools with alleged misconduct — rather than the general borrower population affected by the repayment-plan changes.

A tax complication worth knowing about

A federal tax exemption that kept forgiven student debt from counting as taxable income expired at the end of 2025 and is not expected to be extended. That means eligible borrowers may need to plan for a potential tax bill on any amount forgiven through this settlement in 2026, even as the debt itself is wiped out.