In a new court filing, the American Federation of Teachers (AFT) is asking a federal judge to force the U.S. Department of Education to follow the law and cancel the debts of borrowers who have met longstanding requirements for loan forgiveness.
The AFT argues the department is delaying cancellation for many borrowers in a way that is "unwarranted and unlawful" and will have "real and significant consequences."
That's because the clock is ticking. With the American Rescue Plan, Congress temporarily stopped treating loan cancellation as taxable income until Jan. 1, 2026. Soon, many borrowers will again be expected to pay taxes on those cancelled debts.
The AFT is seeking an injunction to force the department to do a few things, including:
- Cancel the debts of borrowers on income-dependent repayment plans like IBR, ICR and PAYE when those borrowers have met the requirement that they be in repayment for 20 or 25 years.
- Process thousands of outstanding requests for Public Service Loan Forgiveness from borrowers who "buy back" time that did not previously count.
The trouble started with the SAVE Plan
The Education Department largely blames these delays in debt cancellation on the Biden administration and the federal courts.
"Congress designed these [plans] to ensure that borrowers repay their loans, yet the Biden Administration tried to illegally force taxpayers to foot the bill," Education Secretary Linda McMahon said in a July statement.
McMahon is referring to the income-driven SAVE repayment plan, which was created by the Biden administration and was so generous in its terms that the courts forced the department to put the plan on ice, throwing much of the loan program into confusion.
The Education Department has used the legal uncertainty around SAVE to justify halting cancellation under ICR, PAYE and IBR.
IBR was created by Congress and is not being challenged legally. But the department told NPR in July that questions about SAVE's legality had made it difficult to determine eligibility for cancellation under IBR. As a result, many borrowers who are likely eligible for cancellation are still having to make payments.
"For any borrower that makes a payment after they became eligible for forgiveness, the Department will refund overpayments when the discharges resume," the department told NPR in a statement this week. As for when that might be?
The department would not commit to a timetable: "IBR discharges will resume as soon as the Department is able to establish the correct payment count."
PSLF troubles
Borrowers enrolled in Public Service Loan Forgiveness (PSLF) have also encountered delays. According to court records, by the end of last month, the department had a backlog of nearly 75,000 applications for cancellation under the PSLF "Buyback" program. That allows borrowers with 10 years of verified public service to make qualifying payments for months they spent in forbearance or deferment.
In its amended suit, the AFT says, from May to August, the department received far more buyback applications than it processed. Each month, "the Department received an average of 9,902 new applications, but only processed an average of 3,604."
In a statement, Education Department Deputy Press Secretary Ellen Keast says, with the PSLF "Buyback" program, the Biden administration was guilty of "weaponizing a legal discharge plan for political purposes. The Department is working its way through this backlog while ensuring that borrowers have submitted the required 120 payments of qualifying employment."
Processing these buyback applications can be time-consuming, and the Trump administration's move to cut the Office of Federal Student Aid's staff by half may have slowed its efforts.
The Jan. 1, 2026, tax changes will not apply to Public Service Loan Forgiveness.
Many borrowers are at risk of default
More than 7 million borrowers are enrolled in SAVE and have not been required to make payments, but the Trump administration recently resumed interest accrual on these loans, looking to nudge borrowers into alternative plans.
But court records show enrolling in an alternative has been slow-going for months. In February, the department temporarily stopped accepting applications for all income-dependent repayment plans, and though it has resumed, more than a million were still pending as of the end of August.
The Education Department's Keast tells NPR this backlog began during the previous administration, and that the department "is actively working with federal student loan servicers and hopes to clear the Biden backlog over the next few months."
Amidst all this confusion and uncertainty, data suggest many federal student loan borrowers are failing to repay their loans.
"One in three federal student loan borrowers that are in repayment right now are in some stage of delinquency," says Daniel Mangrum, a research economist at the Federal Reserve Bank of New York.
Meaning millions of borrowers are now at serious risk of default.
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