If Towd Point Asset Trust holds your federal student loans, the Sweet v. McMahon settlement can wipe out your remaining balance, but it cannot refund the payments you already sent to Towd Point. That is the core of Towd Point student loan relief under this settlement: discharge yes, refund no. The Department of Education can only return money that was paid to the federal government, and payments on commercially-held Federal Family Education Loan (FFEL) Program loans went to the private trust that bought them.
Why Towd Point Changes What You Get
Towd Point Asset Trust is a securitized trust that purchased bundles of FFEL loans from the original lenders. FFEL loans were federally authorized but privately funded, and many were later sold into trusts like Towd Point. When a trust holds your loan, the loan is “commercially held” rather than government-held, even though it is still a federal student loan.1Federal Student Aid. Who’s My Student Loan Servicer?
That distinction drives everything about your relief. The settlement discharges commercially-held FFEL loans for qualifying borrowers. But the refund component of full settlement relief only reaches payments made to the Department of Education. Money you sent to a commercial holder is outside the Department’s authority to return.2Project on Predatory Student Lending. FAQs for the Sweet v. McMahon Settlement
The practical impact can be large. A borrower who paid $15,000 over several years on a commercially-held FFEL loan held by Towd Point would get the remaining balance canceled but would not receive a refund check for those payments. A borrower who had consolidated the same loans into a Direct Consolidation Loan before discharge would be eligible for refunds on every payment made on the consolidation loan, because those payments went to the Department.
What Full Settlement Relief Actually Includes
If you qualify, full relief has three parts:
- Discharge of the outstanding balance on all federal student loans tied to your attendance at the fraudulent school, including Direct Loans and FFEL Program loans.
- Refunds of payments previously made to the federal government on those loans, issued as checks or direct deposits from the U.S. Treasury.
- Deletion of the loan tradeline from your credit report, including any delinquency or default history.
For a Towd Point borrower, the discharge and credit deletion still apply. The refund line is where the money stops.
Forbearance During Processing Is Not Always Automatic
While a discharge is being processed, class members are supposed to be placed on administrative forbearance so no payments are due on potentially dischargeable loans. For commercially-held FFEL loans, that forbearance may not happen automatically the way it does for Direct Loans. You may need to call your servicer directly and tell them you are eligible for forbearance based on a pending borrower defense claim.
If your servicer will not act, class counsel recommends emailing sweet@ed.gov and copying info@ppsl.org, including your name, application number, and a description of the problem.2Project on Predatory Student Lending. FAQs for the Sweet v. McMahon Settlement
Who Qualifies Under Sweet v. McMahon
The settlement, granted final approval in November 2022 and effective January 28, 2023, covers roughly 200,000 borrowers and at least $6 billion in cancellation. It identifies more than 150 schools where the Department found strong evidence of widespread misconduct. Those institutions, mostly for-profit colleges, are listed in the settlement’s Exhibit C.3Federal Student Aid. Sweet v. McMahon Settlement4Federal Student Aid. Sweet v. Cardona Settlement Agreement Exhibit C
Two groups of borrowers matter here.
Automatic Relief Class
Borrowers whose Borrower Defense applications were pending as of June 22, 2022, and who attended an Exhibit C school. Also borrowers whose claims were denied between December 2019 and October 2020, if they attended an Exhibit C school. These borrowers receive full settlement relief without further action.
Post-Class Applicants
Borrowers who submitted Borrower Defense applications between June 23, 2022, and November 15, 2022. This group does not get automatic relief. The Department must review their applications under the 2016 Borrower Defense regulation and issue decisions by a firm deadline. If the Department misses the deadline, the borrower automatically gets the same full relief.5Federal Student Aid. Borrower Defense School Notification Process Under the 2016 Regulation
If you did not attend an Exhibit C school and did not file a Borrower Defense application in the windows above, this settlement does not cover you. Borrower defense is a separate application process that continues to exist outside the settlement.
Deadlines That Can Trigger Automatic Relief
The court split the post-class deadlines into two tracks in its December 11, 2025, ruling:
- Exhibit C school applications had to be decided by January 28, 2026. If the Department missed this deadline for your application, you are entitled to automatic full settlement relief.
- All other post-class applications must be decided by April 15, 2026. If that deadline passes without a decision, those borrowers also receive automatic full settlement relief.
The Department sought to modify the settlement and then asked the Ninth Circuit for an emergency stay. The Ninth Circuit denied the stay on March 25, 2026, noting the Department had known since February 2023 that the post-class applicant group totaled over 205,000 people.6United States Court of Appeals for the Ninth Circuit. Case No. 26-1136
Taxes on the Discharged Balance
You generally do not owe federal income tax on the amount discharged. IRS Revenue Procedure 2020-11 covers borrower defense discharges, closed school discharges, and discharges from legal settlements based on school misconduct claims. The discharged amount is not gross income and should not be reported on your federal return, and the IRS directed loan holders not to issue a Form 1099-C for these discharges.7Internal Revenue Service. IRS and Treasury Issue Guidance for Students With Discharged Student Loans and Their Creditors
This treatment comes from Revenue Procedure 2020-11, not from the American Rescue Plan Act exclusion that expired December 31, 2025. The revenue procedure specifically and permanently covers fraud-based discharges like these.8Taxpayer Advocate Service. What to Know About Student Loan Forgiveness and Your Taxes If you receive a 1099-C in error, do not report the amount as income, and contact your loan servicer to have the form corrected.
State tax treatment varies. Some states follow the federal rule automatically, others may treat the discharged debt as taxable income. Check with your state’s tax authority if the discharge is large.
What to Do Now
Confirm your loan holder. Log in at StudentAid.gov and open the “My Loan Servicers” section, or call the Federal Student Aid Information Center at 1-800-433-3243. If your FFEL loans show a commercial holder like Towd Point, plan around a discharge without a refund of past payments to the trust.1Federal Student Aid. Who’s My Student Loan Servicer?
Keep your contact information current with the Department and your servicer. Discharge notices, refund payments where applicable, and decision letters all depend on the Department being able to reach you. Update your address through your StudentAid.gov account if it has changed since you filed.
If you are a post-class applicant who attended an Exhibit C school and did not receive a decision by January 28, 2026, you should be entitled to automatic full settlement relief. Post-class applicants for non-Exhibit C schools face the April 15, 2026, deadline. If either deadline has passed for your file and you have not seen a discharge notice, email sweet@ed.gov with your name and application details.3Federal Student Aid. Sweet v. McMahon Settlement
If your FFEL loans are still with Towd Point and forbearance did not start automatically after you filed, call your servicer and ask them to place the loans on borrower defense forbearance during processing. Keep records of every call and every payment. The discharge you are owed is real; the refund door is the one that is closed.