The Trump administration has reached an agreement with the American Federation of Teachers (AFT) to resume student loan forgiveness for approximately 2.5 million borrowers enrolled in specific federal repayment plans. This follows a lawsuit from the teachers union, which challenged the government’s halt of forgiveness under certain plans.
Under the agreement, the Department of Education will process loan forgiveness for those eligible in repayment plans that calculate payments based on a borrower’s income. The administration had previously stopped providing forgiveness under these plans due to its interpretation of a separate court decision.
Borrowers will also be shielded from large tax bills on debt forgiven in 2025. According to AFT President Randi Weingarten, “We took on the Trump administration when it refused to follow the law and denied borrowers the relief they were owed. Our agreement means that those borrowers stuck in limbo can either get immediate relief or finally see a light at the end of the tunnel.”
The Department of Education stated that it is reviewing forgiveness programs not impacted by court rulings that blocked much of the Biden administration’s efforts to cancel student debt. In its statement, the department said, “The Administration looks forward to continuing its work to simplify the student loan repayment process through implementation of the President’s One Big Beautiful Bill Act.”
The agreement covers several forgiveness programs, including income-driven repayment (IDR) plans, income-contingent repayment plans, Pay As You Earn (PAYE), and Public Service Loan Forgiveness (PSLF) plans. Borrowers who have made payments beyond what was needed for forgiveness will receive reimbursements. The department must continue processing IDR and PSLF “buyback” applications as well.
Loan balances forgiven before December 31 will not be counted as taxable income; however, starting in 2026 this protection ends due to changes in tax law. The administration is also required to file progress reports with the court every six months detailing application processing and loan forgiveness rates.
About 2.5 million borrowers enrolled in IDR plans are expected to benefit from this agreement, with an additional 70,000 waiting for forgiveness under PSLF.
Megan Walter from the National Association of Student Financial Aid Administrators noted that mass layoffs at the Education Department could affect how quickly applications are processed. She advised borrowers awaiting forgiveness to keep thorough records and mentioned that any payments made while waiting for approval would be refunded if their application succeeds.
Public Service Loan Forgiveness has been available since 2007 for borrowers working in public service or non-profit organizations after making 120 qualifying payments over ten years. In 2023, an option was introduced allowing borrowers to “buy back” months missed during periods of deferment or forbearance so more could qualify for forgiveness.
