Student Loan Borrowers Sue Trump Administration For Blocking Loan Forgiveness And Affordable Payments

Student loan borrowers are going on offense. On Tuesday, the American Federation of Teachers, a major national labor union, represented by the Student Borrower Protection Center and Berger Montague, filed a lawsuit against the Trump administration for preventing millions of borrowers from accessing affordable repayment plans and student loan forgiveness programs authorized by federal law.

The lawsuit comes as the federal student loan repayment system is in turmoil. Millions of borrowers have been stuck in a forbearance for months due to a legal challenge associated with the SAVE plan, an income-driven repayment program launched by the Biden administration two years ago. The fallout from that legal challenge is now impacting an even broader swath of borrowers after the Trump administration blocked access earlier this month to all income-driven repayment programs, including the Income-Based Repayment plan (or IBR), and imperiling borrowers’ ability to pursue Public Service Loan Forgiveness (or PSLF). Income-driven repayment plans and PSLF are programs that the Department of Education is legally required to offer borrowers under laws passed by Congress, and IBR and PSLF in particular are not subject to any current legal challenge. Other borrowers are reporting massive increases in their monthly payments as they are prevented from enrolling in affordable income-driven plans or recertifying their income as required by law.

“By effectively freezing the nation’s student loan system, the new administration seems intent on making life harder for working people, including for millions of borrowers who have taken on student debt so they can go to college,” said AFT President Randi Weingarten in a statement on Wednesday. “The former president tried to fix the system for 45 million Americans, but the new president is breaking it again,” and borrowers are now facing peril “because of this illegal and immoral decision to deny borrowers’ their rights under the law.”

Here’s the latest, and what student loan borrowers need to know.

Department Of Education Cuts Off Student Loan Forgiveness And Affordable Repayment For Millions

Until this year, federal student loan borrowers had access to four separate income-driven repayment plans. Congress first authorized the creation of student loan repayment plans tied to a borrower’s income in 1993, resulting in the creation of the Income-Contingent Repayment plan, or ICR. The Department of Education used a regulatory process to create the parameters for the ICR plan the following year, and then relied on that same process to subsequently establish the PAYE and REPAYE plans, the latter of which then became the SAVE plan under President Biden. Congress passed separate legislation in 2007 to create the Income-Based Repayment plan, or IBR. All of these income-driven plans use formulas based on a borrower’s income, with student loan forgiveness of any remaining balance after a fixed repayment term of 20 or 25 years.

Congress separately created the PSLF program in 2007, as well. PSLF can provide for loan forgiveness in as little as 10 years for borrowers who commit to working for nonprofit or government employers, where they typically earn significantly lower incomes than they would in similar positions in the private sector. Teachers, nurses, public defenders and prosecutors, law enforcement officers, and military service members can all qualify for the program. PSLF requires most borrowers to repay their loans under an income-driven repayment plan in order to qualify for loan forgiveness. So while PSLF is technically a separate program, it goes hand-in-hand with income-driven repayment.

Earlier this month, the Department of Education blocked access to all income-driven repayment plans after a new decision was issued by the 8th Circuit Court of Appeals as a legal battle over the SAVE plan continues. A group of Republican-led states had filed suit nearly a year ago to try to block the SAVE plan, which they argued was an illegal overreach by the Biden administration. In its most recent ruling, the 8th Circuit broadened its preliminary injunction blocking SAVE while the legal battle continues, resulting in more than eight million borrowers remaining in a forbearance that prevents them from making progress toward loan forgiveness, including under PSLF. The court also suggested that student loan forgiveness at the end of the 20- or 25- year repayment term for the ICR and PAYE plans may be improper (despite three decades of regulations, loan contract language, and public assurances made to borrowers), but did not issue any order formally blocking these plans or striking them down. And the court explicitly indicated that neither IBR nor PSLF are subject to the injunction.

But by blocking access to all income-driven repayment plans, including IBR, the Trump administration has thrown the federal student loan repayment system into disarray. Recent graduates who want to enroll in any income-driven repayment plan cannot apply. Borrowers stuck in the SAVE plan forbearance who want to switch to IBR, ICR, or PAYE to resume progress toward loan forgiveness through PSLF are unable to do so. And borrowers who must recertify their income for an existing repayment plan, which is an annual requirement under federal law, are being prevented from doing so, resulting in sudden, catastrophic increases in their monthly payments.

Borrowers Sue Department Of Education For Blocking Affordable Payment Plans And Student Loan Forgiveness

On Tuesday evening, the American Federation of Teachers, represented by the Student Borrower Protection Center and Berger Montague, filed a lawsuit against the Department of Education in federal district court in the District of Columbia. In the complaint, AFT argues that the Trump administration’s actions are illegally preventing millions of student loan borrowers from accessing income-driven repayment plans and PSLF, programs that the department is mandated to provide by statute and that are not subject to any injunction.

“Congress provided clear and specific directives to the Department so that millions of Americans could repay their loans without being hindered by the debt,” reads the complaint. “Specifically, Congress directed ED to offer income-driven repayment (IDR) plans that tie a borrower’s monthly payment to their income. Notwithstanding this clear Congressional command, the Department has chosen to shut down access to all income-driven repayment plans. Nor has the Department indicated when it will–if ever–resurrect the programs. The result: borrowers are unable to access affordable monthly payment plans, some borrowers are being thrust into default on their debt, and some public service workers are being denied their statutory right to lower their monthly payment and earn credit towards Public Service Loan Forgiveness (PSLF).”

The complaint notes that the shutdown of the federal student loan income-driven repayment system “comes in the context of the President repeatedly announcing his plans to close the Department of Education, which was created by an Act of Congress. And, it is on the heels of the recent equally-unlawful actions to gut critical student loan protections from the Consumer Financial Protection Bureau. This shutdown, which creates significant confusion for borrowers, therefore comes at a time when the official government offices meant to assist borrowers with their loans are being shuttered.”

The lawsuit seeks a declaration that the Department of Education is unlawfully blocking ICR, IBR, and PSLF in violation of federal law, and injunctive relief to reopen these programs and cease collections activities against student loan borrowers in the interim.

Additional Turmoil At The Department Of Education Threatens Student Loan Forgiveness Programs

The newest legal challenge comes only a week after the Department of Education instituted mass layoffs, effectively cutting its workforce in half. According to the department, the cuts have impacted every unit and division within the department. The Office of Federal Student Aid, which manages the entire Direct federal student loan system (including by helping oversee federal student loan forgiveness and income-driven repayment programs), was not spared.

The Trump administration has tried to assure families, college students, and student loan borrowers that critical department operations would not be impacted. “The Department of Education will continue to deliver on all statutory programs that fall under the agency’s purview, including formula funding, student loans, Pell Grants, funding for special needs students, and competitive grantmaking,” said the department in a statement last week.

But a coalition of Democratic-led state attorneys general quickly filed a legal challenge last week, arguing that the massive cuts to the workforce amounts to an illegal shutdown of the Department of Education without congressional approval.

“This massive RIF is not supported by any actual reasoning or specific determinations about how to eliminate purported waste in the Department—rather, the RIF is part and parcel of President Trump’s and Secretary McMahon’s opposition to the Department of Education’s entire existence,” reads the complaint, which was filed in federal district court in Massachusetts. “The Trump Administration cannot dismantle the Department of Education. It cannot override—whether through large-scale RIFs or otherwise—the statutory framework prescribing the Department’s responsibilities.”

Ultimately, student loan borrowers “simply want to pay back their student loans according to the terms that Congress, and their contracts, provide,” said the AFT in its lawsuit filed on Tuesday. “Therefore, AFT, on its own behalf and on behalf of its members, brings this lawsuit to compel the Department to abide by Congress’s command and provide borrowers with the ability to re-pay their loans through the affordable, income-driven repayment plans” and access student loan forgiveness programs that the Department of Education is legally required to offer.