Millions of student loan borrowers may finally glimpse 'the light at the end of the tunnel': the Trump administration has agreed to bring back loan forgiveness programs it had once partly blocked after a legal showdown.
In a surprising move, the Trump administration has struck a deal with the American Federation of Teachers to wipe out student debt for millions of borrowers who stay on top of their payments—finally offering a lifeline to those who’ve been playing by the rules.
The Trump administration has struck a deal with the American Federation of Teachers to expand student debt forgiveness, offering relief to millions on income-driven repayment plans—finally giving hardworking borrowers a real break. Getty Images
On Friday, the AFT and the Department of Education reached an agreement to start canceling student loans for borrowers on income-driven repayment plans, according to a joint status report filed the same day—marking a major win for millions struggling under student debt.
"This is a tremendous win for borrowers," said Winston Berkman-Breen, legal director for Protect Borrowers, which served as counsel for the teachers’ union. "With today’s filing, borrowers can rest a little easier."
In a lawsuit filed in March, the AFT—representing roughly 1.8 million members—accused Trump administration officials of preventing federal student loan borrowers from accessing repayment and forgiveness programs that were available when they first took out their loans.
Earlier this year, the White House put a pause on student loan forgiveness for certain income-driven repayment plans—programs that base a borrower’s monthly payment on their salary.
Once borrowers complete a set number of qualifying payments on an income-driven repayment plan, they can usually have the rest of their student loan balance forgiven.
Under Friday’s agreement, borrowers who qualify for student loan forgiveness this year won’t have to pay federal taxes on the relief—a major financial relief for millions. REUTERS
Trump’s Education Department, under Linda McMahon, argued it had the authority to block these programs because of a court order that paused the Biden-era SAVE plan—a key income-driven repayment program.
The temporary blocks left borrowers with only one repayment plan that could lead to loan forgiveness—the Income-Based Repayment (IBR) plan.
Months of courtroom drama ended with a surprise: the Trump administration has agreed to bring back the programs, as announced in Friday’s landmark agreement.
“For nearly a decade, the AFT has fought for the rights of student loan borrowers to be freed from the shackles of unjust debt—and today, a huge part of that affordability fight was vindicated,” AFT President Randi Weingarten said in a statment.
“This year, 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.”
Could you be eligible for student loan forgiveness? Find out now.
Who Qualifies for Student Loan Forgiveness?
The AFT announced that the agreement extends relief to borrowers across income-based, income-contingent, pay-as-you-earn plans, and the Public Service Loan Forgiveness program.
To qualify for forgiveness, borrowers must make a required number of minimum payments under their specific repayment plans.
Borrowers who overpaid after becoming eligible for income-driven loan forgiveness will now get refunds, thanks to the Trump administration’s new agreement.
The government is set to process buyback applications for both IDR and PSLF plans, including for borrowers no longer needing to show a partial financial hardship thanks to Trump’s Big Beautiful Bill Act.
On February 28, 2023, protesters packed the steps of the Supreme Court, demanding change. AFP via Getty Images
How to Find Out if You’re Enrolled in a Qualifying Plan
Want to see all your federal student loans in one place? Log in to StudentAid.gov and select "My Aid" or "View Details" for a full breakdown.
Borrowers can review every loan and its repayment plan to determine if it qualifies for student loan forgiveness.
Will You Owe Taxes on Cancelled Student Debt?
The Trump administration confirmed that under Friday’s agreement, borrowers who qualify for student loan forgiveness this year won’t have to pay federal taxes on the relief.
The agreement also addresses fears that borrowers could face tax penalties if their debt forgiveness is pushed into next year.
If your student loans are discharged in 2026 or beyond, current tax law treats the forgiven amount as taxable income—potentially adding thousands to your bill.
The Department of Education will now honor the original eligibility date for debt cancellation under IDR plans, instead of the processing date—a win for borrowers.
The agreement won’t become legally binding until it receives the court’s approval. AP
Borrowers who qualify by December 31, 2025, are protected from surprise tax bills, even if processing is delayed by court battles or a government shutdown.
According to the union, the agreement addresses a looming 'tax bomb' set to hit borrowers in 2026, when canceled debt would be treated as income.
President Trump with Education Secretary Linda McMahon on March 20, 2025.REUTERS
When Will Student Loan Forgiveness Take Effect?
Court approval is still needed for the joint deal to become legally enforceable.
With court approval, the administration must provide six monthly updates on the status of IDR and PSLF applications and loan cancellation.
If approved, the agreement could provide much-needed relief to borrowers nationwide who have been trapped in student loan repayment programs for decades.
The exact timing for court approval has yet to be determined.
