Anne Hemenway—Senior Attorney
In March 2025, the American Federation of Teachers ("AFT") filed a lawsuit against the United States Department of Education (U.S. Dist. Ct. D.C. Civ. Action 25-802 (RBW)) for denying federal student loan borrowers their rights to an affordable repayment plan and to debt forgiveness opportunities which are mandated in their loan terms. These student loan income-driven repayment plans were mandated by Congress in part by President Biden's Savings on a Valuable Education ("SAVE") Plan, 20 U.S.C. §§ 1070 et seq., and the Department of Education’s revised regulations which provided more generous terms for income-based repayment plans. See Missouri v. Trump, 128 F.4th 979 (8th Cir. 2025) (citing SAVE Rule, 88 Fed. Reg. at 43901-02). Other students represented in the pending AFT class-action lawsuit are seeking relief through the Public Service Loan Forgiveness Buyback program. At the end of August 2025, the Department of Education had a backlog of 1,076,266 income-driven repayment plan applications.
The AFT lawsuit was filed after the Eight Circuit Court of Appeals' decision in Trump, 128 F.4th 979, filed on February 18, 2025, blocked the Department of Education from implementing aspects of the income-driven repayment plans. Immediately after the ruling, the Department of Education directed student loan services to stop accepting and processing income-driven repayment applications, as allowed under the SAVE Plan.
A large concern of the AFT lawsuit is that the American Rescue Plan Act of 2021, 15 U.S.C. §§ 9001 et seq., made student loan forgiveness tax-free at the federal level through the end of 2025, but Congress's recent budget reconciliation bill, H.R. 1, did not extend the law shielding student loan forgiveness from taxation after the end of 2025. This leaves over a million borrowers who are currently waiting on their repayment applications potentially facing large tax bills if their student loans discharge after December 2025 and not before.
That possibility looks more likely now because AFT's lawsuit against the Department of Education was put on hold by U.S. District Judge Walton in a October 4, 2025 ruling. The judge ruled that the AFT's lawsuit would be stayed until Congress restores appropriations to the Department of Justice.
