What to Know About the Student Loan Forgiveness Class Action Suit

A legal battle over allegedly stalled student loan forgiveness is heating up this week, as a major national teachers union made new allegations against the Trump administration and took steps to request immediate relief.Last week, the American Federation of Teachers (AFT) amended a previously-filed lawsuit to expand its claims that the Department of Education is illegally preventing borrowers from accessing affordable payments and student loan forgiveness under three income-driven repayment (IDR) plans.The amended complaint, which seeks class action status, also argues that the department is effectively blocking people from accessing Public Service Loan Forgiveness (PSLF), as well.The union contends that relief under these programs is mandated by laws passed by Congress, and that the Trump administration is violating the law by blocking or delaying access.

This week, the AFT filed a motion for a preliminary injunction, asking a federal court to order the department to stop blocking relief under IDR and PSLF, and to take steps before the end of this year.“Congress weighed in to help make college more affordable, particularly if a person works in public service jobs like teaching or nursing,” said AFT President Randi Weingarten in a statement on Wednesday.“The law is clear that after a certain period, if you do everything right, the government will forgive your loans, but yet again we have had to ask the courts to make the federal government uphold its end of the deal.The AFT’s members and the plaintiffs in this case have been paying on their loans, some for over 25 years, but the government is refusing to forgive their debts.

It’s more than unacceptable: It’s illegal.” Here's what you need to know if you’re a borrower having trouble accessing the student loan forgiveness or repayment benefits under IDR or PSLF.  The latest student loan forgiveness lawsuit updates an earlier challenge The AFT technically didn’t file a brand new lawsuit.Rather, it amended a lawsuit it filed against the Department of Education earlier in April over massive backlogs associated with applications for IDR plans and PSLF Buyback (a program that allows PSLF borrowers to receive student loan forgiveness if they make a lump sum payment to cover certain prior periods of deferment or forbearance).  The backlogs got significantly worse, the AFT argued, after the department essentially shut down IDR application processing the previous month.The department argued the shutdown was only temporary and was necessary in order to update its systems to comply with a separate court order issued in the ongoing litigation over the SAVE plan, the Biden-era IDR program that became the subject of a legal challenge last year.The AFT paused its initial lawsuit shortly after filing, as the Department agreed to resume IDR application processing.

The department also agreed to submit monthly progress reports to the court, detailing the status of the backlogs for IDR applications and PSLF Buyback.  But while these status reports reflected progress, they also confirmed that the backlogs have persisted.After nearly six months, the department has nearly cut the IDR application backlog in half, but more than a million IDR applications remain outstanding.And while the department has been steadily processing PSLF Buyback requests at around a few thousand applications per month, the backlog of those applications has grown from around 49,000 to well over 70,000.Union files amended class action complaint over stalled student loan forgiveness Last week, the AFT filed an amended lawsuit, updating the prior complaint it filed in April.

The amended complaint does two things.First, the AFT is seeking to convert its challenge into a class action lawsuit, likely because following recent Supreme Court precedent, doing so gives the AFT a clear avenue to request a preliminary injunction, which is essentially emergency relief before the case is fully decided.Second, the AFT expanded the allegations contained in the legal challenge.The AFT argues that the progress the department has made on the IDR and PSLF Buyback application backlogs is insufficient, as hundreds of thousands of borrowers are still not able to access IDR or receive PSLF.

But the AFT is also raising new issues, including the alleged mass denial of hundreds of thousands of IDR applications; the blocking of student loan forgiveness for qualifying borrowers under the IBR, ICR, and PAYE plans; the denial of IBR to borrowers who do not have a “partial financial hardship” (that requirement was eliminated this summer by Congress); and broader denials of student loan forgiveness under PSLF.“Although the Department began to process pending IDR applications after this case was filed, the slow rate of processing and the lack of transparency with respect to whether processed applications are being correctly approved or denied do not meaningfully address the reality that borrowers are still being denied their statutory rights to affordable payment plans and to debt cancellation,” said the AFT in its amended complaint.“The Department’s unlawful activity is especially harmful for… long-term borrowers and public service workers entitled to have their debts cancelled through the IDR and PSLF programs.” New filing seeks emergency order on student loan forgiveness This week, the AFT ratcheted up the legal pressure on the Department of Education by filing a motion for a preliminary injunction, which is a request that the court order the department to act now, even before the court issues a final decision in the case.  Specifically, the AFT is asking the court to force the department to process IDR and PSLF Buyback requests in accordance with federal law, and to discharge the debts for borrowers who have reached the threshold for student loan forgiveness, particularly for borrowers in the IBR plan (which has not been blocked by, or challenged in, any court).The AFT noted that the issue is extremely time-sensitive, as loan forgiveness under IDR plans will become taxable again starting in 2026 after Republican lawmakers declined to extend expiring tax relief in the “One Big, Beautiful Bill Act” that Congress passed in July.

“Beginning January 1, 2026, the provision of federal tax code that provides student loan cancellation shall not be considered a taxable event for federal income tax purposes will expire,” said the AFT in its motion for a preliminary injunction.“Although some student loan cancellation programs are specifically exempt from federal income taxes, such as PSLF… IDR cancellation is not one of them.Therefore, any borrower who is currently eligible to have their loans cancelled under an IDR plan, such as the IBR plan, but whose cancellation is being withheld by the Department, risks this cancellation being taxed as federal income if the cancellation is not processed before January 1, 2026.” Key takeaways for student loan borrowers pursuing IDR and PSLF The Department of Education has not yet issued a formal response to either the AFT’s amended complaint, or its motion for a preliminary injunction.The department has until early October to respond, according to a proposed scheduling order filed with the court last week.

However, the department has previously argued that it is complying with federal law as well as court orders issued in the ongoing SAVE plan litigation, which disrupted IDR processing operations.“Because the temporary removal of applications for income-driven student loan repayment plans and a related pause on the processing of such applications is an appropriate response to ensure compliance with another court’s injunction, and because Plaintiff and its members will suffer no meaningful harm that outweighs the public interest in swift and orderly compliance with that injunction, the Court should deny Plaintiff’s motion for extraordinary injunctive relief,” said the department in an earlier court filing opposing the AFT’s initial efforts to force the processing of IDR and PSLF Buyback applications.Individual student loan borrowers do not have to take any specific steps to potentially benefit from the AFT’s legal challenge.The court must agree to certify the lawsuit as a class action, which has not happened yet.

But if the court agrees with the AFT and certifies the lawsuit as a class action, potentially all borrowers who have pending IDR or PSLF Buyback applications, borrowers who have been improperly denied access to IBR or other available IDR plans, and borrowers who qualify for IDR student loan forgiveness but haven’t yet received a discharge, could all be automatically included.However, it will still take some time for student loan borrowers to receive clarity; the court isn’t likely to rule until after oral arguments are held later in the fall.If you need personalized guidance on managing your student loans, IDR applications, or PSLF qualification, our student loan planners can help.Schedule a consultation to review your specific situation.