The student loan IDR and PSLF class action settlement, reached in American Federation of Teachers v. U.S. Department of Education on October 17, 2025, requires the Department of Education to resume processing income-driven repayment and Public Service Loan Forgiveness Buyback applications, stop denying borrowers for lacking “partial financial hardship,” backdate loan cancellations to the date a borrower actually became eligible, reimburse people who kept paying after they qualified for discharge, and file monthly status reports with the court. Judge Reggie B. Walton entered the order staying the case on October 23, 2025.1Civil Rights Litigation Clearinghouse. American Federation of Teachers v. U.S. Department of Education The AFT withdrew its motions for class certification and a preliminary injunction without prejudice, so both can be refiled if the government falls short.
What the Settlement Requires
The agreement covers five concrete obligations for the Department of Education:
- Resume processing applications for all statutory IDR plans — Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn — and for the PSLF Buyback program.
- Stop denying borrowers on the grounds that they lack “partial financial hardship,” and let borrowers denied on that basis since July 4, 2025, reapply.
- Set the loan-cancellation date as the date a borrower became eligible for discharge, not the date the Department got around to processing the file.
- Reimburse borrowers who kept making payments after they had already qualified for discharge.
- File six monthly status reports with the court, beginning 30 days after the end of a government shutdown, showing IDR and PSLF Buyback applications received, pending, and processed.
The “partial financial hardship” piece tracked a change already in the law. The One Big Beautiful Bill Act, signed July 4, 2025, eliminated that requirement for IBR, but the Department had continued denying applications on that basis anyway.2Federal Student Aid Partners. Federal Student Loan Program Provisions Effective Upon Enactment Under One Big Beautiful Bill Act
Why the Backdating Provision Matters for Taxes
The date the Department stamps on a discharge is not just paperwork. IDR forgiveness granted in 2025 remained exempt from federal income tax. Starting January 1, 2026, forgiven balances outside of PSLF are once again treated as taxable income. Backdating cancellation to the eligibility date means borrowers whose files sat in the Department’s own backlog are not taxed simply because the government was slow.3Protect Borrowers. Following AFT Lawsuit, Trump Agrees to Deliver Student Debt Relief and Protect Borrowers From Tax Liability
Who the Settlement Covers
The AFT’s September 2025 amended complaint proposed five classes of affected borrowers, and the settlement’s terms map onto them:
- More than 1,076,000 borrowers with pending IDR applications across ICR, IBR, PAYE, and SAVE.
- Roughly 460,000 borrowers whose IDR applications had been denied after July 4, 2025, for lacking “partial financial hardship” or for selecting the lowest-payment option on an OMB form.
- Borrowers who had completed IBR’s required payment years but had not received cancellation.
- Borrowers who had satisfied ICR or PAYE repayment requirements without receiving cancellation.
- Borrowers awaiting PSLF Buyback processing after meeting the public-service requirements.
The settlement does not shield borrowers from servicer errors, incorrect account records, or bureaucratic mix-ups that fall outside the Department’s direct processing queue.4Student Loan Planner. AFT Settlement Student Loans Those problems are the subject of separate litigation the AFT is pursuing against MOHELA.5Forbes. Major Student Loan Servicer Failed 6.5 Million Borrowers Says Amended Lawsuit
Where the Backlogs Stand
The monthly status reports required by the settlement are the clearest public record of how the Department is doing. The direction is mixed.
The IDR backlog has come down. It peaked above 1.5 million in May 2025 and stood at roughly 734,000 by the end of December 2025, a reduction of about 848,000 applications over seven months.6NASFAA. New ED Status Report Shows Gradual Processing of IDR PSLF Backlog In March 2026, the Department received more than 321,000 new IDR applications, up from 243,000 in February, and pending IDR applications sat around 554,000.7Forbes. 643,000 Student Loan Borrowers Are Stuck in Backlogs as Applications Surge
The PSLF Buyback backlog is moving in the opposite direction. It grew from about 49,000 pending applications in April 2025 to roughly 83,000 in December 2025, and climbed to approximately 89,720 by the end of March 2026.7Forbes. 643,000 Student Loan Borrowers Are Stuck in Backlogs as Applications Surge In March 2026 the Department processed 3,280 Buyback applications while receiving 4,660 new ones, so the queue grew by nearly 1,400 in a single month.8NASFAA. New ED Status Report Shows Growing Backlog of PSLF Buyback Applications At that rate the Department itself estimated more than two years to clear the Buyback queue, and many borrowers have already waited over a year for a decision.
Total borrowers stuck in combined IDR and PSLF Buyback backlogs as of March 2026: more than 643,000.
How the Case Got to a Settlement
The lawsuit began on March 18, 2025, when the AFT sued the Department of Education in the U.S. District Court for the District of Columbia.1Civil Rights Litigation Clearinghouse. American Federation of Teachers v. U.S. Department of Education The trigger was the Department’s decision, after the Eighth Circuit blocked the SAVE plan in February 2025, to pull online applications for every IDR plan and instruct servicers to stop processing them altogether.9Higher Ed Dive. Education Department Re-Opens IDR Student Loan Applications The complaint alleged violations of the Higher Education Act, the Administrative Procedure Act, and contractual obligations to borrowers.
The AFT moved for a temporary restraining order on March 24, 2025. Two days later, the Department restored the online applications, though it told the court it would not begin processing them until at least May 10, 2025. On April 26, 2025, the court ordered the Department to file monthly reports on its progress. The first report, filed May 15, revealed nearly two million pending IDR applications and roughly 49,000 pending PSLF Buyback applications.10Protect Borrowers. New Court Filing Reveals Backlog of 2 Million Borrower Payment Plan Applications In September 2025 the AFT amended its complaint to seek class certification for millions of borrowers and moved for a preliminary injunction. The settlement followed a month later.
What Could Reopen the Case
The core case (No. 1:25-cv-00802) is stayed under the October 2025 order, but Judge Walton retains jurisdiction. Because the class certification motion and the preliminary injunction motion were withdrawn without prejudice, the AFT can revive them if the Department fails to meet its settlement obligations.1Civil Rights Litigation Clearinghouse. American Federation of Teachers v. U.S. Department of Education The monthly status reports are the tripwire: they document, in the court record, whether processing is keeping pace.
Pressures Building on the Same System
Two developments outside the settlement bear on how quickly the backlogs actually clear.
The SAVE plan is on its way out. On March 10, 2026, a federal court invalidated most of the July 2023 regulation that established it, barring the Department from implementing SAVE’s payment formulas, interest subsidies, and discharge provisions.11Federal Student Aid. IDR Court Actions More than seven million borrowers who had been placed in interest-free forbearance during the litigation must move to another repayment plan. Analysts have warned that when the SAVE transition hits in full, the IDR backlog could balloon to around seven million applications, which at current processing speeds would take an estimated 25 months to clear.6NASFAA. New ED Status Report Shows Gradual Processing of IDR PSLF Backlog
The One Big Beautiful Bill Act also created a new Repayment Assistance Plan (RAP), launching July 1, 2026, with monthly payments tied to a tiered percentage of adjusted gross income and forgiveness after 30 years. RAP forgiveness is taxable, unlike PSLF, and RAP payments do count toward PSLF.12NPR. Student Loans Guide Education Changes Repayment Plan PAYE and ICR are scheduled to sunset by July 1, 2028.6NASFAA. New ED Status Report Shows Gradual Processing of IDR PSLF Backlog
The settlement secured real protections for borrowers already in the queue. Whether those protections translate into timely discharges depends on whether the Department’s processing capacity can absorb what is coming next.