How the Cancellation of $6 Billion Dollars in Student Loan Debt Will Impact Your Security Clearance

Posted by Ryan C. Nerney, Esq.

Update: On November 16, 2022, the Judge granted final approval of the settlement in the Sweet v. Cardona lawsuit.  The settlement between the class members and the Department of Education will eliminate approximately $6 Billion in student loan debt for approximately 200,000 who were defrauded by various different schools.  The settlement is set to start taking effective approximately 90 days after the final approval.  However, a few intervenor schools named in the lawsuit may file an appeal with the Ninth Circuit Court of Appeals.  If they file an appeal and the appeal is granted, the class members and the Department of Education may have to go back to the drawing board to negotiate a new settlement agreement.

Delinquent student loan debt is a major concern that could negatively impact your security clearance if you do not take action to resolve it. Delinquent student loan debt in relation to national security clearance is governed under Guideline F, Financial Considerations in the Security Executive Agency Directive 4 (SEAD 4). Under Guideline F, the government may have security concerns related to financial irresponsibility if you have student loan debt that is in default.

However, a recent preliminary settlement in a major predatory lending class action lawsuit for student loans includes approximately $6 billion in cancellation of student loan debt for approximately 200,000 class members. While this is only a preliminary settlement, meaning that it is still subject to input from the class members or objections, should there not be any further concerns or objections—which is expected—the preliminary settlement would be fully approved come November 2022.

The main concern with delinquent student loans revolves around the inability or unwillingness to satisfy debts. This can also include a history of not meeting financial obligations, which essentially casts doubt on the individuals’ honesty, reliability, trustworthiness and judgment.

When it comes to these student loan debts, the majority of them are quite large in dollar amounts and raise red flags for security clearance adjudicators. However, one of the main mitigating conditions under Guideline F is related to conditions beyond the person’s control, including any victimization by predatory lending practices. Therefore, the question that must be asked is, “Does cancellation of your student loan debt resolve the government’s security clearance concerns?” In short, it typically does, depending on the circumstances.

In a recent case, Sweet v. Cardona, filed in the U.S. District Court for the Northern District of California, plaintiffs brought a class action lawsuit against the U.S. Department of Education (DOE), alleging that claims for loan cancellation, also known as Borrower Defense Applications, had been disregarded by the DOE. This is based upon applications for students who claim to have been defrauded by their schools to their detriment.

At a recent hearing on August 4, 2022, the Judge granted preliminary approval for a proposed settlement. The final court approval, currently scheduled to be heard in November 2022, would see the immediate cancellation of $6 billion for over 200,000 class members. This immediate cancellation would only be for certain schools, but if the cancellations occur, this would have major mitigating circumstances for security clearance holders that find themselves delinquent on student loan debt.

More specifically, if your school is not on the list, but you submitted a Borrowers Defense Application prior to June 22, 2022, then as part of the settlement, your application would need to be ruled on within 36 months. If that does not occur, then your loans will be automatically canceled. If you are not a class member but applied prior to the final approval of the settlement, then the 36-month rule applies as well.

While there is no telling what will happen after November 2022, this could establish a precedent for at least reviewing Borrowers Defense Applications in a more timely manner, so students and former students have a faster resolution.

Also, as previously mentioned, one of the mitigating conditions under Guideline F is if you dispute the debt or if you were a victim of predatory lending practices. The settlement in Sweet v. Cardona specifically touches on both of these mitigating conditions, as the crux of the arguments in this class action lawsuit was due to students being defrauded by their colleges. The complete cancellation of student debt would wipe out any obligation the students have to pay the student loans, and any negative marks on their credit reports would be removed. This would very likely mitigate any potential concern the government would have under Guideline F related to delinquent student loans.

Again, while those in the class and from the schools named in the settlement would benefit the most, there are advantages for non- or post-class members, especially if they submitted their application prior to the final approval of this settlement.

It is always important to stay on top of your finances in order to avoid the potential windfalls of financial considerations allegations that could negatively impact one’s security clearance. However, this recent settlement decision, if fully approved, will be a strong argument for the mitigation of any potential concerns related to delinquent student loan debt.

Find more security clearance articles here.


  • Ryan C. Nerney, Esq.

    Ryan C. Nerney, Esq. is a Managing Partner in the Ladera Ranch office of Tully Rinckey PLLC, where he focuses his practice primarily on national security law, with experience in federal employment and military matters. Ryan represents clients who have security clearance issues against agencies such as the CIA, NSA, DIA, DOD, NRO, and DOE. He has represented numerous clients in security clearance revocation proceedings and has a proven record of saving clients’ jobs, as well as anticipating and resolving potential future issues with their security clearances. Ryan currently serves as Secretary for the National Security Lawyers Association (NSLA) and was awarded the 2022 Security Clearance Lawyer of the Year by the NSLA. He can be reached at [email protected] or at (888)-529-4543.

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This entry was posted on Monday, August 22, 2022 6:35 pm

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