The biggest student loan lawsuit updates of the past two years all point in the same direction: the SAVE repayment plan is dead, 205,000 borrowers defrauded by their schools are getting court-ordered discharges, and loan servicers MOHELA and Navient are paying for years of mishandled accounts. A March 2026 final judgment formally vacated the SAVE rule after the Department of Education settled with Missouri and six other states. The Ninth Circuit ordered the department to grant full relief to the Sweet v. McMahon class. And an American Federation of Teachers settlement forced the department to restart processing income-driven repayment applications it had frozen.
How the SAVE Plan Lawsuit Ended
Two coalitions of Republican state attorneys general challenged the SAVE plan in spring 2024. Seven states led by Missouri sued in the Eastern District of Missouri; eleven states led by Kansas filed in federal court in Kansas.1Student Loan Borrower Assistance. Update on Lawsuits Challenging the SAVE Plan and Options for Borrowers Both argued the Department of Education had exceeded its authority under the Higher Education Act by setting payments so low and forgiveness timelines so short that SAVE amounted to mass cancellation Congress never authorized.
On August 9, 2024, the Eighth Circuit blocked the government from forgiving any principal or interest under SAVE, from waiving accrued interest, and from applying the plan’s lower payment thresholds.2Missouri Attorney General’s Office. Eighth Circuit Student Loan Win The Supreme Court declined to lift that injunction. In February 2025, a three-judge Eighth Circuit panel affirmed and went further, holding that the Secretary’s authority “means the Secretary must design ICR plans leading to actual repayment of the loans,” and that the entire SAVE rule should have been blocked.3Eighth Circuit Court of Appeals. State of Missouri v. Biden, Nos. 24-2332 and 24-2351
After President Trump took office, the department stopped defending the plan. On December 9, 2025, it signed a settlement agreeing to stop enrolling new borrowers, deny all pending SAVE applications, transition current enrollees to other plans, and refrain from using income-contingent repayment authority to forgive loans under SAVE or REPAYE. The settlement also requires the department to give the Missouri Attorney General 30 days’ notice before canceling more than $10 billion in loans in any single month, for the next 10 years.4U.S. Department of Education. Missouri Settlement Agreement
District Judge John Ross initially dismissed the case as moot in February 2026, reasoning that both sides now wanted the same outcome. The Eighth Circuit reversed on March 9, 2026, directing the district court to enter the settlement as a final judgment.5CNBC. SAVE Plan for Student Loan Borrowers Is Over, Federal Appeals Court Rules Judge Ross entered that judgment the following day, formally vacating the SAVE rule.6Civil Rights Litigation Clearinghouse. State of Missouri v. Biden
What SAVE Borrowers Face Now
About 7.5 million borrowers were enrolled in SAVE when the injunction froze the plan. They have sat in a mandatory forbearance since mid-2024: no payments owed, no credit toward forgiveness. Interest resumed accruing on August 1, 2025, so balances have grown during the pause.7Free Student Loan Advice. SAVE Litigation Updates and FAQ
Time in the SAVE forbearance does not count toward Public Service Loan Forgiveness or income-driven repayment forgiveness. Payments made before the forbearance, while a borrower was actively in SAVE or REPAYE, still count. The PSLF “buyback” option may let some borrowers retroactively claim credit for forbearance months, though the mechanics for extended periods remain unclear.8Student Loan Borrower Assistance. What’s Happening With the SAVE Plan
Starting July 1, 2026, servicers will notify affected borrowers to pick a new repayment plan within 90 days. Anyone who doesn’t choose will be moved automatically to either the Standard Repayment Plan or the new Tiered Standard Plan.9U.S. Department of Education. Next Steps for Borrowers Enrolled in Unlawful SAVE Plan Current alternatives include Income-Based Repayment, Income-Contingent Repayment, and Pay As You Earn. PAYE and ICR are themselves scheduled to be eliminated by July 1, 2028, under legislation signed in July 2025.10Federal Student Aid. IDR Court Actions
Sweet v. McMahon: 205,000 Discharges Ordered
On March 25, 2026, the Ninth Circuit ruled that roughly 205,000 borrowers who filed fraud-related claims against their schools are entitled to full loan discharges, refunds of past payments, and correction of negative credit reporting.11Get Out of Debt. Sweet v. McMahon Appeals Court Student Loan Discharge
The case, originally Sweet v. DeVos, challenged the Department of Education’s failure to process borrower defense to repayment applications. A 2022 settlement required the department to adjudicate applications from a “post-class” group — borrowers who filed between June and November 2022 — by January 28, 2026. The department missed that deadline, which under the settlement’s own terms triggered automatic full relief.12Federal Student Aid. Sweet v. McMahon Settlement
The department sought an emergency stay. A unanimous Ninth Circuit panel of Judges Wardlaw, Owens, and Bress denied it, finding the government “can point to no changed circumstances that render it inequitable to apply the same settlement agreement that it bargained for years ago,” and noting the department had known the size of the group for more than three years.13Ninth Circuit Court of Appeals. Sweet v. McMahon, No. 26-1136 The department has one year to complete processing, refunds, and credit corrections.11Get Out of Debt. Sweet v. McMahon Appeals Court Student Loan Discharge
AFT v. Department of Education: IDR Applications Restored
After the Eighth Circuit’s SAVE ruling, the Department of Education pulled IDR application forms from its website and ordered servicers to stop processing IDR applications altogether. The American Federation of Teachers sued in March 2025, arguing the department had read the ruling so broadly it was denying borrowers their statutory right to affordable payments and blocking progress toward PSLF.14ABC News. Teachers Sue Trump Admin for Stopping Affordable Student Loan Repayment
The case, before Judge Reggie Walton in the U.S. District Court for the District of Columbia, was converted into a class action with five borrower classes in September 2025. The parties settled in October 2025. The department agreed to resume processing IDR applications, stop denying borrowers based on a “partial financial hardship” requirement, set discharge effective dates as of the date a borrower became eligible, and reimburse payments made after qualification. The case was stayed while the parties comply with the settlement and remains ongoing as of mid-2026.15Civil Rights Litigation Clearinghouse. AFT v. U.S. Department of Education
MOHELA Lawsuits
MOHELA, one of the largest federal loan servicers, faces active litigation in two courts.
Maldonado v. MOHELA
Filed in September 2024, this California case alleges MOHELA failed to implement Department of Education discharge orders for borrowers who attended six predatory for-profit schools, including Corinthian Colleges, ITT Technical Institute, and the Art Institutes. Despite receiving discharge lists from the department, MOHELA allegedly kept sending billing statements, demanding payments, and reporting the debts as active to credit bureaus.16Project on Predatory Student Lending. Maldonado v. MOHELA
MOHELA moved to dismiss on state sovereign immunity grounds. The federal court rejected that argument in April 2025, stating it “would be an affront to the dignity of California if an entity like MOHELA were permitted to avoid suit in California based on alleged commercial misconduct towards California residents.”17Project on Predatory Student Lending. Court Denies MOHELA’s Attempt to Dismiss Borrowers’ Lawsuit MOHELA also petitioned the Supreme Court for immunity, but the case proceeded. In March 2026, the court granted partial summary judgment, confirming MOHELA violated California law by continuing to bill borrowers after receiving department discharge lists.16Project on Predatory Student Lending. Maldonado v. MOHELA
AFT v. MOHELA
The American Federation of Teachers filed a consumer protection suit in July 2024 alleging MOHELA mismanaged accounts for more than 8 million borrowers. The complaint describes overcharging hundreds of thousands of borrowers, botching PSLF and IDR applications, sending untimely billing statements, and giving inaccurate information through poorly trained staff. The AFT says it spent over $780,000 on student debt clinics and $1.6 million on outside vendor contracts to help members navigate MOHELA’s errors. An amended complaint was filed in January 2026, and the case is active in the U.S. District Court for the District of Columbia.18Protect Borrowers. AFT v. MOHELA Amended Complaint
Navient Settlements
In January 2022, 39 state attorneys general announced a $1.85 billion settlement resolving allegations that Navient steered borrowers into costly forbearances rather than counseling them about IDR, and that it originated predatory subprime loans to students at low-graduation-rate for-profit schools. The deal included $1.7 billion in private loan cancellation for over 66,000 borrowers and $95 million in restitution to roughly 350,000 federal loan borrowers.19Navient AG Settlement. Navient Attorney General Settlement
In September 2024, the Consumer Financial Protection Bureau filed a proposed consent order that would permanently ban Navient from servicing federal Direct Loans, require $100 million in borrower redress, and impose a $20 million civil penalty.20CFPB. CFPB Bans Navient From Federal Student Loan Servicing The settlement payments have moved forward despite broader Trump administration cutbacks at the CFPB. Rust Consulting began mailing checks to affected borrowers in February 2026. Navient made no admission of wrongdoing.21Student Loan Planner. Navient Settlement Payments CFPB
Tax on Forgiveness in 2026 and Later
The federal tax exclusion for discharged student debt, established by the American Rescue Plan Act, expired on January 1, 2026. Forgiveness received in 2026 under IDR or settlement-based discharges is now generally taxable, and borrowers may receive a Form 1099-C for the forgiven amount.22National Association of Student Financial Aid Administrators. Welcome to 2026: Some Student Loan Forgiveness Is Now Taxable
Public Service Loan Forgiveness, Teacher Loan Forgiveness, and discharges based on death or total and permanent disability remain non-taxable. Borrowers who were insolvent at the time of discharge — meaning total liabilities exceeded assets — may exclude some or all of the forgiven amount by filing IRS Form 982.23IRS Taxpayer Advocate. What to Know About Student Loan Forgiveness and Your Taxes The AFT settlement with the Department of Education added one narrow protection: borrowers who qualified for forgiveness before January 1, 2026, but experienced processing delays won’t have a 1099-C filed against them.22National Association of Student Financial Aid Administrators. Welcome to 2026: Some Student Loan Forgiveness Is Now Taxable