If your federal student loans are held by Towd Point Asset Trust, Towd Point student loan relief under the Sweet v. McMahon settlement works in a specific and limited way: your remaining balance can be discharged if you qualify, but the Department of Education cannot refund the payments you already made to Towd Point. That single distinction decides what the settlement is actually worth to you.
Why Towd Point Loans Are Treated Differently
Towd Point Asset Trust is a securitized trust that bought bundles of Federal Family Education Loan (FFEL) Program loans from the original lenders. The federal government authorized FFEL loans, but private lenders funded them, and many were later sold into trusts like Towd Point. That makes your loans “commercially held” rather than government-held, even though they’re federal loans.
The Sweet settlement does discharge commercially-held FFEL loans for borrowers who qualify. The refund piece is where the structure breaks down. The Department of Education can only refund money that was paid to the federal government. Payments you sent on a Towd Point-held FFEL loan went to the trust, not the Department, so the Department has no legal authority to refund them.1Project on Predatory Student Lending. FAQs for the Sweet v. McMahon Settlement
In practical terms: a borrower who paid $15,000 over several years on a Towd Point-held FFEL loan would see the remaining balance wiped out but would not receive a refund check for that $15,000. 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.
Confirm Towd Point Actually Holds Your Loans
Before anything else, verify who holds your loans. Log in to your account at StudentAid.gov and look at the “My Loan Servicers” section, or call the Federal Student Aid Information Center at 1-800-433-3243. If a commercial holder such as Towd Point appears, your discharge path and refund limits are set by that status.2Federal Student Aid. Who’s My Student Loan Servicer?
What the Settlement Covers
Sweet v. McMahon (originally Sweet v. DeVos, then Sweet v. Cardona) resolved a class action brought by borrowers who said the Department of Education unreasonably delayed or improperly denied their Borrower Defense to Repayment applications. The court granted final approval in November 2022, covering at least $6 billion in debt cancellation for approximately 200,000 borrowers, and the settlement became effective January 28, 2023.3Federal Student Aid. Sweet v. McMahon Settlement
The settlement identifies more than 150 schools, mostly for-profit colleges, where the Department found strong evidence of widespread misconduct. Those institutions are listed in the settlement’s Exhibit C, and attendance at one of them is central to who qualifies and how.4Federal Student Aid. Sweet v. Cardona Settlement Agreement Exhibit C
Full settlement relief, when you qualify for it, includes three things:
- Discharge of the outstanding balance on all federal student loans tied to your attendance at the fraudulent school, including both Direct Loans and FFEL Program loans.
- Refund of amounts you previously paid to the federal government on those loans, issued as a check or direct deposit from the U.S. Treasury. For Towd Point loans, this is where the gap sits: payments made to the trust are not refundable.
- Deletion of the credit tradeline for the discharged loans, including payment history and any delinquency or default notation.
While discharge is being processed, class members are placed on administrative forbearance, meaning no payments are due on the potentially dischargeable loans. For Direct Loans this generally happens automatically. For commercially-held FFEL loans, including Towd Point loans, it may not. You may need to contact your servicer directly and tell them you’re eligible for forbearance based on a pending borrower defense claim. If the servicer is unresponsive, class counsel recommends emailing sweet@ed.gov with a copy to info@ppsl.org, including your name, application number, and a description of the problem.
Whether You Qualify
Automatic Relief Class
You’re in this group if your Borrower Defense application was pending as of June 22, 2022, and you attended an Exhibit C school, or if your claim was denied between December 2019 and October 2020 after you attended an Exhibit C school. People in this class receive full settlement relief without taking further action and without waiting for a new decision from the Department.3Federal Student Aid. Sweet v. McMahon Settlement
Post-Class Applicants
If you submitted a Borrower Defense application between June 23, 2022, and November 15, 2022, you’re a post-class applicant. Relief isn’t automatic. The Department must review your application under the 2016 Borrower Defense regulation and issue a decision by a court-set deadline.5Federal Student Aid. Borrower Defense School Notification Process Under the 2016 Regulation (34 CFR 685.222) If the Department misses that deadline, you receive the same full relief as the Automatic Relief Class.3Federal Student Aid. Sweet v. McMahon Settlement
In November 2025 the Department asked for an 18-month extension of the original January 28, 2026 decision deadline. The district court denied most of that request and split the deadlines in a December 11, 2025 ruling:
- For post-class applications tied to Exhibit C schools, the deadline stayed January 28, 2026. If the Department missed it, those borrowers automatically receive full settlement relief.
- For all other post-class applications, the deadline was extended to April 15, 2026. If the Department misses that date, those borrowers also automatically receive full settlement relief.6United States Court of Appeals for the Ninth Circuit. Case No. 26-1136
The Department’s attempt to modify the settlement entirely was denied by the district court on February 24, 2026, and the Ninth Circuit denied an emergency stay on March 25, 2026.
The Consolidation Question
Consolidating a Towd Point-held FFEL loan into a Direct Consolidation Loan converts it into a government-held loan. Once consolidated, payments go to the Department, which means any later discharge under the settlement can carry a refund of those post-consolidation payments. Pre-consolidation payments to Towd Point remain unrefundable because they were made to the trust. Consolidation is a one-way change with its own trade-offs, so if you’re weighing it specifically to position for refund eligibility, understand that it only helps for payments you make after consolidating.
Taxes on the Discharged Amount
Borrowers receiving relief under this settlement generally do not owe federal income tax on the discharged loan amount. IRS Revenue Procedure 2020-11 covers borrower defense discharges, closed school discharges, and discharges from legal settlements based on claims of school misconduct. The discharged amount is not treated as gross income, 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 tax treatment comes from Revenue Procedure 2020-11, not the American Rescue Plan Act exclusion that expired on 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 it as income; contact your loan servicer to have it corrected. State tax treatment varies, so check with your state tax authority if you receive a large discharge.
What to Do Now
Confirm your loan holder at StudentAid.gov. If Towd Point appears, plan around a discharge-only outcome rather than a discharge-plus-refund outcome for payments already made to the trust.
Keep your address and contact information current with both the Department of Education and your servicer. Relief notifications, refund checks, and decision letters all depend on the Department being able to reach you.
If you’re 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 based on the missed deadline. Post-class applicants for non-Exhibit C schools are measured against the April 15, 2026 deadline. In either case, if you believe the deadline has passed without a decision, email sweet@ed.gov with your name and application details.3Federal Student Aid. Sweet v. McMahon Settlement
If your Towd Point loans are not placed on administrative forbearance while your discharge is pending, contact your servicer and request it based on your borrower defense claim. If they won’t act, escalate through the same email address with a copy to info@ppsl.org.