Key Points
- The American Federation of Teachers (AFT) is pushing to certify its lawsuit against the Department of Education as a nationwide class action, potentially covering more than a million borrowers.
- The case centers on blocked or delayed access to income-driven repayment (IDR) plans and Public Service Loan Forgiveness (PSLF).
- Timing matters: unless relief is granted before January 2026, borrowers receiving IDR loan forgiveness could face federal tax bills.
The American Federation of Teachers (AFT), representing 1.8 million members, has escalated its legal battle with the U.S. Department of Education (ED). Earlier this year, the union sued ED and Education Secretary Linda McMahon, alleging the agency unlawfully froze access to income-driven repayment (IDR) plans after a court blocked parts of the Biden-era SAVE plan.
Last month, AFT filed an amended complaint seeking to certify the case as a class action, potentially extending relief nationwide to impacted borrowers. If granted, the preliminary injunction could force ED to resume processing applications and cancel loans under longstanding repayment and loan forgiveness programs.
Meanwhile, the Department insists its pause was necessary to comply with litigation, and earlier this week began processing IBR-based student loan forgiveness again.
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Who Could Be Covered By This Lawsuit?
If the court grants class certification, five main borrower groups could benefit:
|
Group |
Who They Are |
Number Of Borrowers |
Action Requested |
|---|---|---|---|
|
Borrowers with pending IDR applications |
Individuals whose IDR (IBR, PAYE, SAVE, ICR) applications have not yet been approved or denied. |
Over 1 Million |
Relief requiring ED to process these applications and grant enrollment timely. |
|
Borrowers whose IDR applications were denied |
Those whose applications were rejected — especially under older forms or for selecting “lowest monthly payment” or involving SAVE routing. |
Approx. 460,000 |
Relief to reverse denials or allow reapplication under correct rules. |
|
Borrowers eligible for IBR forgiveness but not granted it |
People who have completed the required 20–25 years (or number of payments) under IBR but have not had their loans cancelled. |
Unknown |
Relief forcing ED to honor statutory forgiveness obligations. |
|
Borrowers eligible under ICR or PAYE but not granted it |
People who have completed the required 20 years and whose forgiveness features ED contends are blocked due to SAVE litigation. |
Unknown |
Relief requiring ED to restore cancellation features under ICR or PAYE eligibility. |
|
Borrowers entitled to PSLF but denied |
Borrowers who have completed 120 qualifying payments or applied for PSLF Buyback (to recover “lost” qualifying months) but haven’t gotten forgiveness. |
Approx. 74,000 |
Relief to process and grant PSLF discharges or process Buyback applications timely. |
The Key Legal Question
At its core, the case asks: can the Department of Education suspend or slow programs Congress authorized, even in response to litigation over a related plan?
AFT argues the agency has no such discretion under the Administrative Procedure Act. ED counters that operational changes were unavoidable to comply with federal injunctions.
The court is expected to consider class certification and the preliminary injunction this fall.
Why Timing Matters More Today
The lawsuit has an urgent dimension. Temporary tax relief for student loan forgiveness expires December 31, 2025. After that, discharges through IDR could once again be treated as taxable income, adding thousands to borrowers’ tax bills.
PSLF forgiveness remains tax-free. But IDR borrowers who technically qualify this year could be forced to wait until 2026 – potentially triggering federal (and some state) income tax obligations.
However, many tax professionals believe the actual date of achieving forgiveness it what would count for the timing, not when it’s actually processed. That doesn’t mean there won’t be complications. If 1099-C tax forms are issued in different years, it could trigger notices from the IRS, require tax return amendments, and more.
The AFT argues that this looming deadline magnifies the harm, making preliminary court relief essential.
What Borrowers Can Do Now
- Check your repayment plan. Confirm you are in a qualifying IDR plan (IBR, PAYE, ICR) or working toward PSLF.
- Monitor ED’s monthly status reports. These show how fast backlogs are being reduced.
- Plan for potential taxes. Borrowers near forgiveness under IDR should be aware of possible 2026 tax bills. Run the tax bomb calculator to understand your potential tax liability.
- Watch the court calendar. A ruling on class certification and injunction could arrive before year-end.
Millions of student loan borrowers may be directly affected by the outcome of the AFT’s case. If the court grants class action status, relief could extend nationwide, but timing is critical. Without intervention, borrowers eligible for discharge could face unnecessary payments, missed relief, or surprise tax notifications in 2026.
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Editor: Colin Graves
The post AFT Lawsuit Could Speed Up Student Loan Forgiveness appeared first on The College Investor.