Workers walk through the basement of the U.S. Capitol building in Washington, DC, on Wednesday, October 8, 2025.
Valerie Preche | Bloomberg | Getty Images
Borrowers’ wait times for student loan forgiveness could be even longer during the government shutdown and pending union lawsuits against the Trump administration.
U.S. District Judge Reggie Walton said in an Oct. 4 filing that the American Federation of Teachers’ legal challenges to Trump officials will be put on hold until Congress restores appropriations to the U.S. Department of Justice. The government shut down on October 1 after Democrats and Republicans failed to agree on a spending deal.
In its lawsuit, AFT accused the U.S. Department of Education of denying federal student loan borrowers their right to affordable repayment plans and debt forgiveness opportunities mandated by the terms of their loans.
Putting the union’s legal challenges on hold could extend the long waits already faced by borrowers, consumer advocates say. Additionally, the law shielding student loan forgiveness from taxes expires at the end of 2025, so borrowers who receive relief after that could face charges from the IRS.
“We are extremely concerned that without judicial intervention, borrowers may not be able to receive cancellations for this year and potentially face thousands of dollars in tax liability,” said Persis Yu, deputy executive director and managing counselor at Protect Borrowers, which advises AFT.
The Education Department requested the stay earlier this month, citing Justice Department lawyers who are prohibited from working during the government shutdown. Plaintiffs did not object to this request.
“However, if the closure is not resolved by Friday, we reserve the right to request the resumption of the briefing,” Yu said.
The Department of Education did not respond to a request for comment on the loan forgiveness measure. When a CNBC reporter sent an email to a spokesperson for the network, he received an automated message saying he would respond to the email once government functions resumed.
Here’s what borrowers need to know about suspended cases.
The lawsuit focuses on the debtor’s balance.
AFT, a labor union with about 1.8 million members, filed a lawsuit against the Trump administration in March, accusing the agency of blocking borrowers from Congress-mandated student loan repayment plans and popular loan forgiveness programs for government and nonprofit employees. In September, the union amended its complaint and sought litigation status.
“Borrowers are unable to access affordable monthly payment plans, some borrowers are forced to default, and some government employees are denied their statutory right to reduce their monthly payments and obtain Public Service Loan Forgiveness credits,” the complaint states.
As of the end of August, the Department of Education had 1,076,266 applications for income-based repayment plans, according to court records from September. That means more than 1 million people are waiting to join new income-based repayment plans. These plans limit a borrower’s monthly bills to a percentage of their income and erase the debt after a set period of time.
Meanwhile, more than 74,000 applications from borrowers wishing to qualify for the Public Service Loan Forgiveness Buyback Program are pending. For the first time in 10 years, PSLF has offered debt forgiveness to certain public servants.
Higher education expert Mark Kantrowitz told CNBC in September that “the backlog is further evidence that the U.S. Department of Education is falling short of the legal requirements to provide these relief programs.”
Time is ticking for borrowers to avoid tax burden
AFT said in its lawsuit that many of the unpaid borrowers may already have loan forgiveness due, but if loan forgiveness occurs after December, these borrowers could face a huge tax bill.
The American Rescue Plan Act of 2021 made student loan forgiveness tax-free at the federal level until the end of 2025. But President Trump’s “big, beautiful bill” did not extend or make permanent its sweeping provisions.
The taxes on student loan forgiveness can be significant.
The average loan balance for borrowers enrolled in IDR plans is about $57,000, Kantrowitz said.
Kantrowitz estimates that for those in the 22% tax bracket, that exemption would result in a tax liability of more than $12,000. Low-income earners, those in the 12% tax bracket, would still owe about $7,000.
The difficulty in accessing student loan relief programs comes at a difficult time for borrowers.
More than 5 million people are in default on their federal student loans, and an additional 4 million are in “late delinquency,” or 181 to 270 days late on their payments, according to a Congressional Research Service analysis last month.
“The impact of student loan closures is an added blow to college graduates who have significant student loan debt and need affordable monthly payment plans,” said AFT President Randi Weingarten. “Every day of delay means more stress and uncertainty, and more people falling through the cracks.”
