AFT Sues Education Department Over Blocked Student Loan Repayment Plans

The American Federation of Teachers (AFT) is taking legal action against the U.S. Department of Education over the suspension of affordable repayment options for millions of student loan borrowers. The AFT, one of the nation's largest labor unions, filed a lawsuit in district court in Washington, D.C., on Tuesday, challenging the Trump administration's decision to remove applications for income-driven repayment (IDR) plans.

“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.

The Importance of Income-Driven Repayment Plans

Congress established the first IDR plans in the 1990s to make federal student loan payments more manageable for borrowers. These plans cap monthly installments at a percentage of an individual's discretionary income and eliminate any remaining debt after a specified period, typically 20 or 25 years.

As of September 2024, over 12 million individuals were enrolled in IDR plans, according to higher education expert Mark Kantrowitz. These plans have proven crucial for millions seeking affordable debt management and are considered essential by many borrowers pursuing loan forgiveness.

The Current Situation and Legal Challenge

On its website, the Education Department cites a recent court order as the reason for suspending IDR plan applications. This refers to a February ruling from an appeals court that blocked the Biden administration's new IDR plan, known as SAVE (Saving on a Valuable Education).

"The Department is working to ensure these programs conform with the 8th Circuit's ruling, and anticipates the revised form allowing borrowers to change repayment plans to be available as soon as next week," a spokesperson for the agency told CNBC.

However, the AFT argues that the Education Department has misinterpreted the 8th U.S. Circuit Court of Appeals ruling by halting applications for all IDR plans. This decision effectively prevents borrowers enrolled in the blocked SAVE program from transitioning to a new IDR plan and bars new applicants from seeking lower payments under these plans.

Impact on Borrowers

The consequences of this situation are deeply felt by student loan borrowers, as highlighted by Mike Pierce, executive director of the Student Borrower Protection Center. “Student loan borrowers are desperate for help, struggling to keep up with spiking monthly payments in a sinking economy, all while President Trump plays politics with the student loan system,” Pierce said.

The lawsuit filed by the AFT aims to restore access to affordable repayment options for millions of borrowers and address the concerns raised by education advocates and borrowers themselves.