New Litigation over PSLF and IDR Forgiveness

One major piece of litigation supported by a non-profit group has just been filed – so it will be awhile before we have any answers.

This legal complaint, filed on September 9, 2025, by the American Federation of Teachers (AFT) and several individual plaintiffs against the U.S. Department of Education and its Secretary, Linda McMahon, alleges that the Department is unlawfully withholding access to and benefits from federal student loan income-driven repayment (IDR) plans and the Public Service Loan Forgiveness (PSLF) program.

Here’s a summary of the key points:

Core Allegations:

Withholding IDR Benefits: The Department is accused of failing to provide millions of borrowers with access to income-driven repayment plans (IBR, ICR, PAYE), which Congress mandated to make loan repayment affordable and provide debt cancellation after a prescribed period (20-25 years).
Withholding PSLF Benefits: Public service workers who have met the requirements for loan cancellation under PSLF (120 qualifying payments over 10 years) are being denied this right.
Processing Delays and Denials: Despite a court order to process IDR applications, there’s a significant backlog (1.3 million as of July 2025), and applications are being denied on improper grounds (e.g., denying IBR for lack of “partial financial hardship” which is no longer a requirement). PSLF Buyback applications, which allow borrowers to recoup months in forbearance, are also backlogged.
Harm to Borrowers: This misconduct forces borrowers to continue making payments on debt that should be canceled, impacts their credit, and may lead to significant tax liability (if loans aren’t canceled before January 1, 2026, due to the expiration of a tax exemption). Interest is also now accruing on loans in the “SAVE litigation forbearance.”
Harm to AFT: The AFT has diverted substantial resources and staff time to assist its members with student loan issues due to the Department’s actions.

Background on IDR and PSLF:

Income-Driven Repayment (IDR): The complaint details the statutory basis for IDR plans (IBR and ICR) under the Higher Education Act, emphasizing the mandatory nature of these programs and the debt cancellation provisions after a certain period of payments. It notes that the “One Big Beautiful Bill Act” ended the “partial financial hardship” requirement for IBR as of July 4, 2025.
Public Service Loan Forgiveness (PSLF): It explains that PSLF mandates loan cancellation for public service workers after 120 qualifying payments.

III. Impact of Prior Litigation (SAVE Plan):

The Department’s “SAVE Plan” (renamed REPAYE) was challenged by states, leading to an injunction on its loan forgiveness provisions.
Crucially, the complaint argues that this injunction does not impact the Department’s obligations to offer and provide cancellation under the IBR, ICR, or PAYE plans, or the PSLF program. Despite this, the current Administration halted access to these plans and paused forgiveness, blaming the Eighth Circuit’s decision.

Named Plaintiffs:

The complaint provides specific examples of individual plaintiffs (Lisa Naugle, Philip Whitley, Sandy Cashman, Kiva Iverson, Rachel Dubreuil, Theodore Wegner) who have met the requirements for IDR or PSLF cancellation but have been denied, or are unable to progress towards, their rightful loan forgiveness due to the Department’s alleged unlawful actions.

Causes of Action:

First Cause of Action (Unlawful Withholding of Agency Action): The Department is unlawfully withholding mandatory statutory, regulatory, and contractual duties to offer and provide benefits under IBR, ICR-based plans, and PSLF.
Second Cause of Action (Arbitrary and Capricious Agency Action): The Department’s halting of loan cancellation for IBR, PAYE, and ICR, and its hold on PSLF relief, are arbitrary, capricious, an abuse of discretion, and not in accordance with the law, as they are not mandated by the Eighth Circuit’s decision and lack rational basis.

Requested Relief:

The plaintiffs seek:

Declaratory judgment that the Department is unlawfully withholding IDR and PSLF benefits.
Class certification for affected borrowers (IDR Application Class, IDR Denial Class, IBR Cancellation Class, ICR Cancellation Class, PSLF Forgiveness Class).
Preliminary and permanent injunctive relief to:
- Prevent the Department from collecting from eligible borrowers until it fulfills its obligations.
- Prevent the Department from charging interest on SAVE-enrolled loans until litigation is resolved.
- Compel the Department to restore full IDR and PSLF benefits, including granting timely loan cancellation to eligible borrowers (especially before January 1, 2026) and processing PSLF Buyback applications.
Attorneys’ fees and other just relief.

https://drive.google.com/file/d/17gOBTOhlgvAkgTvXJ51CNXeak4a9jh3E/view