Key Points
- The American Federation of Teachers (AFT) has filed an amended complaint and motion seeking class action status, arguing the Department of Education is unlawfully blocking or delaying student loan forgiveness under income-driven repayment and Public Service Loan Forgiveness.
- The union contends the Department’s shutdown of repayment systems, combined with massive processing backlogs, has denied borrowers their statutory rights and created imminent financial harm.
- The lawsuit asks a federal court to compel the Department to resume cancellations before January, when federal tax relief on most loan forgiveness is scheduled to expire.
The American Federation of Teachers, representing 1.8 million members, has intensified its legal challenge against the Department of Education and Education Secretary Linda McMahon. In an amended complaint filed this week (PDF File), the union seeks class action status on behalf of millions of borrowers it argues are unlawfully being denied access to income-driven repayment (IDR) programs and Public Service Loan Forgiveness (PSLF).
The filing follows a timeline in which the Department froze processing of IDR applications for months, leaving a backlog that started at two million borrowers, but still is blocking more than one million borrowers. The AFT argues that even as processing resumed, the Department has effectively blocked forgiveness by halting loan forgiveness under IDR plans and allowing a separate PSLF Buyback backlog to climb above 74,000 applications.
The complaint alleges these delays and denials violate federal statutes that require the government to offer affordable repayment options and cancel loans after 20 or 25 years of repayment, or after ten years of public service. The union is pressing the court to enforce these obligations before the end of the year, when the student loan tax bomb resumes.
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How Borrowers Are Harmed
The amended complaint (following up from the lawsuit filed earlier this year) highlights borrowers who have already surpassed the required payment counts for forgiveness but remain trapped in repayment.
For example, borrowers on IBR had to make 240 or 300 payments before qualifying for forgiveness. However, the Department of Education has paused processing this forgiveness for “system updates”. Borrowers are required to continue making payments until the student loan forgiveness is processed. Refunds will be given, but that can take months.
For some, the delays have meant choosing between loan payments and essential expenses such as medical care. Others fear that, if forgiveness is not processed by the end of 2025, they will face steep tax bills when discharged balances once again count as taxable income.
The union contends that the Department’s actions force borrowers to forgo necessities, contemplate bankruptcy, or delay major life decisions. Beyond financial harm, the filings describe emotional stress, sleepless nights, and a sense that the government has broken a promise.
The Legal Arguments
The AFT’s case rests on two main claims under the Administrative Procedure Act:
- Unlawful withholding of benefits. The union argues that Congress mandated the Department to offer and process IDR plans, as well as to cancel loans when statutory conditions are met. By suspending or slowing these processes, the Department is unlawfully withholding benefits.
- Arbitrary and capricious action. The Department’s refusal to cancel loans, even under plans unaffected by litigation, runs contrary to its own statutes, regulations, and contracts with borrowers. The AFT argues this has no rational basis and violates administrative law.
The complaint emphasizes that nothing in the Eighth Circuit’s injunction against the SAVE plan prevents forgiveness under older IDR programs such as IBR, ICR, or PAYE. Yet the Department has stopped discharges under those plans as well.
The lawsuit also points to congressional action. The “One Big Beautiful Bill Act (OBBBA),” signed in July, removed the requirement that borrowers show a partial financial hardship to qualify for IBR, expanding eligibility. The Department, however, continues to deny IBR applications based on that outdated requirement.
The Department of Education says the partial financial hardship requirement will be removed by Winter 2025, but borrowers attempting to switch plans now will be forced into ICR, asked to consolidate their loans when they may not need to, and receive inaccurate information on the Student Loan Repayment Estimator.
Why January Matters
One of the big pushes in the case is the looming tax change on January 1, 2026. Under current law, student loan forgiveness through IDR plans is not counted as taxable income. That provision expires at the end of this year due to changes from the OBBBA.
Unless the Department processes loan forgiveness before then, borrowers who finally get relief in 2026 could face tax bills on balances. Borrowers can use our tax bomb calculator to assess the impact.
The AFT argues this deadline magnifies the harm of delayed forgiveness and justifies the need for immediate injunctive relief. PSLF discharges will remain tax-free, but IDR borrowers risk being saddled with an unexpected tax burden unless their loans are canceled before the deadline.
What Happens Next
The union’s motion for a preliminary injunction asks the court to order the Department to:
- Resume loan forgiveness under IBR, PAYE, and ICR plans for borrowers who have reached the required 20 or 25 years of repayment.
- Cancel loans for PSLF borrowers who have met the 120-payment requirement or have pending Buyback applications that would make them eligible.
- Halt the practice of denying IBR applications based on hardship rules that no longer exist.
- Process the mounting backlog of IDR and PSLF Buyback applications at a meaningful pace.
If granted, the injunction would apply to all affected class members, not just the individual plaintiffs.
The Department has not yet formally responded to the amended complaint or the motion for injunction. Officials have previously defended their actions as necessary given the ongoing litigation surrounding the SAVE plan and have pointed to progress in reducing application backlogs.
The court is expected to hear this complaint October, with hearings likely to follow later in the fall. A decision on the injunction could come before the end of the year, though it remains unclear whether the court will grant broad relief in time to protect borrowers from tax consequences.
For now, millions of borrowers remain in limbo, waiting to see whether the courts will force the government to deliver on promises of income driven repayment and eventual loan forgiveness.
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Editor: Colin Graves
The post Education Dept. Accused Of Blocking Student Loan Forgiveness appeared first on The College Investor.
