The U.S. Department of Education has agreed to resume long-delayed student debt relief under income-driven repayment and Public Service Loan Forgiveness programs as part of a legal settlement announced Oct. 17, 2025, in American Federation of Teachers v. U.S. Department of Education, according to the American Federation of Teachers.

The agreement requires the department to cancel loans for eligible borrowers, issue refunds for overpayments, and process buyback applications for both repayment programs, as confirmed by the U.S. Department of Education.

Who in Texas Will Be Impacted

The settlement has significant implications for thousands of Texans working in public service and nonprofit roles, including:

• Teachers and education professionals participating in the Teacher Retirement System of Texas (TRS).
• Municipal, county, and district employees working in city halls, utilities, and other public agencies.
• Police officers, firefighters, and emergency responders serving under local governments.
• State employees covered by the Employees Retirement System of Texas (ERS).
• Retired public workers who continued making payments after reaching eligibility for forgiveness.

These borrowers qualify for PSLF if they worked full-time for a government or qualifying nonprofit employer and made 120 qualifying monthly payments. Many individuals faced delays or denials due to record-keeping errors and mismanagement by loan servicers. The new agreement requires the department to resume processing these applications and issue refunds where applicable, as reported by Forbes.

How Student Debt Affects Public Employees

Research shows that student-loan debt significantly impacts public-sector employment and financial wellness:

• 56% of public-sector workers said student debt influenced whether they accepted or stayed in a job, according to MissionSquare Research Institute’s February 2025 report.
• Public employees with student debt were less likely to stay in their current jobs—39% compared with 61% of those without debt—as reported by GlobeNewswire on February 11, 2025.
• More than half (52%) of public-sector employees carry student debt, compared with 42% of private-sector workers, according to an August 2024 analysis by the Public Sector HR Association.
• Among those with student loans, 89% of public-sector employees view their debt as a problem—and nearly half see it as a “major problem”—according to an October 2024 MissionSquare Research Institute study.

These findings, gathered from surveys conducted between August 2024 and February 2025, underscore how financial burdens can limit recruitment, retention, and retirement readiness across Texas public institutions.

Why Some Borrowers Already Received PSLF Discharges

Although the new settlement was announced in October 2025, more than 61,000 Texas borrowers had already received PSLF discharges before the agreement, according to U.S. Department of Education data from May 2024.

That’s because the Department of Education had previously launched a series of reforms and temporary waiver programs allowing more payments to qualify for forgiveness. Under those updates, borrowers who worked full-time for qualifying public employers and made 120 payments could have received full discharges.

These earlier efforts included:

• The Limited PSLF Waiver (2021–2022), which allowed borrowers to count past payments that didn’t previously qualify.
• The IDR Account Adjustment (2023–2024), which gave credit for certain periods of forbearance or deferment.
• Expanded eligibility and verification processes, which sped up reviews of older cases.

The recent settlement does not redo those discharges; instead, it addresses remaining delays, refund eligibility, employer coverage expansion, and tax treatment for borrowers still eligible for forgiveness. In short, the 61,000 borrowers represent those who already benefited from prior federal reforms, while the settlement ensures others awaiting relief won’t face additional administrative barriers.

Tax and Refund Protections

A key provision of the settlement specifies that the loan-discharge date will be treated as the date the borrower first became eligible for forgiveness, ensuring the cancellation is not treated as taxable income, according to the AFT’s joint status report. This protects Texas retirees and other eligible borrowers from unexpected tax liabilities tied to forgiven student debt.

Why It Matters for Texas Public Workers

For many in public service, student debt has been a persistent barrier to financial stability and retirement readiness. Debt relief can:

• Reduce financial strain and improve household savings.
• Encourage more professionals to remain in public-sector careers.
• Support long-term financial wellness for Texas’ government and nonprofit workforce.

The Bottom Line

For Texas public employees and retirees, this settlement delivers long-awaited relief and accountability. Borrowers should confirm that their employers remain certified under PSLF, review payment histories, and contact their loan servicers to verify that refunds and forgiveness applications are being processed.

About the Author: Allen Jones is the director of communications and event marketing for TEXPERS. He joined the Association in 2017. Before TEXPERS, he worked in the news media industry, producing content for newspapers, magazines, and online publications and leading newsrooms as an editor and publications manager. [email protected]