The Trump administration has decided to annul student debt from programs it had partially obstructed, thus reopening a route to student loan forgiveness for millions of borrowers.
This development stems from an agreement that was established on Friday between the U.S. Department of Education and the American Federation of Teachers, a labor union.
The arrangement indicates that the Trump administration will once again process student loan forgiveness for qualifying borrowers within two income-driven repayment plans — namely, the original Income-Contingent Repayment plan and the Pay as You Earn plan — as long as those programs are active.
President Donald Trump‘s “big beautiful bill” will eliminate ICR and PAYE starting from July 1, 2028.
“This is a significant victory for borrowers,” remarked Winston Berkman-Breen, the legal director for Protect Borrowers, which acted as counsel for the AFT. “The U.S. Department of Education has chosen to comply with legal requirements and provide Congressionally mandated affordable payments and debt relief for diligent public service workers nationwide.”
The Education Department did not provide an immediate response to a request for a statement.
Over 2.5 million borrowers are participating in either ICR or PAYE, as estimated by higher education expert Mark Kantrowitz.
Reasons behind the block on student loan forgiveness
The AFT, which represents around 1.8 million union members, initiated a lawsuit against Trump officials in March, alleging that they hindered federal student loan holders from accessing programs specified in their original loan agreements.
Earlier this year, the Trump administration had suspended student loan forgiveness for some income-driven repayment plans, claiming it was responding to judicial orders. IDR plans determine a borrower’s monthly payment based on a portion of their discretionary income and cancel any remaining debt after a specified duration, typically 20 or 25 years.
The Education Department under Trump asserted that a judicial order that halted the Saving on a Valuable Education, or SAVE, plan — an initiative from the Biden administration — affected other IDR options.
Consumer advocates contended that this interpretation of the court order was excessively broad. Consequently, borrowers were left with only one repayment option leading to student loan cancellation: the Income-Based Repayment plan, or IBR. For a time, the Trump administration also paused IBR loan forgiveness, although it has since resumed processing that assistance.
In the arrangement with the AFT, the Trump administration also clarified that borrowers qualifying for student loan forgiveness in 2025 will not incur federal tax obligations on the relief received. A law that ensures tax-free treatment at the federal level for canceled education debt is set to expire at the end of this year.
