Court Filing Secures Student Loan Relief, Holds McMahon Accountable

Federal Court to Oversee Student Loan Relief Programs

WASHINGTON—In a significant development, parties involved in the AFT v. U.S. Department of Education case have submitted a joint status report to a federal court. This report outlines a series of measures aimed at aiding borrowers in income-driven repayment (IDR) plans, ensuring debt relief in compliance with federal law. A key aspect of this agreement is the prevention of large tax liabilities for borrowers eligible for loan cancellations in 2025, which could arise from processing delays. The court is being asked to formalize this agreement as a court order.

“For nearly a decade, the AFT has fought for the rights of student loan borrowers to be freed from the shackles of unjust debt—and today, a huge part of that affordability fight was vindicated,” stated AFT President Randi Weingarten. She emphasized the importance of the agreement in providing immediate relief and future debt cancellation without tax penalties for borrowers. “We won’t stop fighting until college is affordable and taking out a student loan doesn’t trap millions of Americans in a ruinous and exploitative debt cycle.”

Winston Berkman-Breen, Protect Borrowers legal director, commented on the filing's significance: “This is a tremendous win for borrowers. With today’s filing, borrowers can rest a little easier knowing that they won’t be unjustly hit with a tax bill once their student loans are finally canceled, pursuant to federal law.” He affirmed the commitment to ensuring the U.S. Department of Education fulfills its legal obligations.

The Joint Status Report from the case is available here.

This lawsuit, initiated by the AFT and individual borrowers, marks a pivotal point in their long-standing battle against the Trump administration's previous actions, which included removing IDR applications from government websites and halting their processing. The lawsuit prompted the resumption of these applications. However, until now, there was resistance to canceling student loan debt under IDR plans despite federal obligations. This filing is the administration's first public commitment to comply with these requirements.

The court's involvement was sought due to a change in tax law, which could impose significant tax burdens on borrowers for canceled debts post-2025. Today's filing aims to protect those eligible for relief in 2025 from such penalties.

The joint status report specifies that the Trump administration will:

• Cancel student debt for borrowers in eligible repayment plans, including IDR, income-contingent repayment, pay-as-you-earn, and the Public Service Loan Forgiveness program.
• Refund payments made by borrowers beyond their eligibility date for cancellation.
• Process applications for IDR and PSLF buybacks, including those without a partial financial hardship, following the One Big Beautiful Bill Act.
• Recognize the debt cancellation eligibility date as the discharge date and not issue IRS forms indicating taxable income for cancellations effective on or before December 31, 2025.
• Submit six monthly reports to the court on the processing status of IDR and PSLF applications and loan cancellations.

This agreement is expected to benefit all borrowers under the specified plans.

Further Reading

Read the press release announcing the lawsuit: AFT Sues U.S. Department of Education, Demands Justice for Student Loan Borrowers Blocked from Affordable Loan Payments (March 19, 2025)

Read the press release announcing IDR application restoration: AFT v. ED Update: Under Pressure, ED Will Restore IDR Application Tomorrow but Will Not Immediately Resume IDR Paperwork Processing (March 25, 2025)

Read the press release announcing the amended complaint and motion for class action relief: AFT Demands Student Debt Cancellation by End of Year, Adds Class Action Plaintiffs

Read an article by Adam Minsky in Forbes on the lawsuit: Group Files Class Action Lawsuit Over Student Loan Forgiveness Denials and Backlogs (Sept. 10, 2025)

Read the lawsuit’s federal court docket: AFT et al., v. U.S. Department of Education (1:25-cv-00802)

About Protect Borrowers

Protect Borrowers (formerly Student Borrower Protection Center) is a nonprofit organization led by a team of experts, lawyers and advocates fighting to build an economy where debt doesn’t limit opportunity. We investigate financial abuses, take predatory companies to court and push for policies to protect working people from debt traps. We aim to deliver immediate relief to families while building power, driving systemic change and fighting for racial and economic justice.

Learn more at protectborrowers.org or follow us on social @BorrowerJustice.

The AFT represents 1.8 million pre-K through 12th-grade teachers; paraprofessionals and other school-related personnel; higher education faculty and professional staff; federal, state and local government employees; nurses and healthcare workers; and early childhood educators.

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