Millions of student loan borrowers will see the “light at the end of the tunnel” after the Trump administration agreed to reinstate loan forgiveness plans it had partially blocked following a court battle.
The Trump administration reached an agreement with the American Federation of Teachers to approve student debt cancellation for millions of borrowers who continually make their regular payments.
The AFT and Department of Education came to an agreement Friday to begin cancelling student loans for borrowers enrolled in income-driven repayment plans, according to a joint status report filed the same day.
“This is a tremendous win for borrowers. With today’s filing, borrowers can rest a little easier,” said Winston Berkman-Breen, legal director for Protect Borrowers, which acted as counsel for the teachers’ union.
In a lawsuit filed in March, the AFT – which has about 1.8 million union members – accused Trump officials of blocking federal student loan holders from accessing repayment and forgiveness programs that were in effect when they first borrowed.
The White House had paused student loan forgiveness under some income-driven repayment plans — which calculate a borrowers monthly payment based on their salary — earlier this year.
After satisfying a certain number of months of qualifying payments on an IDR plan, borrowers can typically get the remaining balance of their loans forgiven.
Trump’s Education Department – led by Linda McMahon – had argued it could block these programs due to a court order pausing the Biden-era Saving on a Valuable Education plan, or SAVE, another income-driven repayment program.
The temporary blocks left borrowers with just one repayment plan option resulting in loan cancellation, known as the Income-Based Repayment plan, or IBR.
After months of court battles, the Trump administration however pivoted and allowed for the return of the programs under Friday’s 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.”
Here’s how to know if you qualify for student loan forgiveness.
Who is eligible for the student loan forgiveness?
The agreement covers all of those in enrolled in income-based repayment, income-contingent repayment, pay-as-you-earn payment plans, and the Public Service Loan Forgiveness program, the AFT said in a press release.
Eligible borrowers must make a set number of minimum payments required under their respective repayment plans before their debt is forgiven.
The Trump administration also agreed to provide refunds to borrowers who made additional payments beyond their date of eligibility for cancellation through income driven repayments.
Additionally, the government would process buyback applications for IDR and PSLF, including from borrowers without a partial financial hardship, a requirement eliminated by Trump’s Big Beautiful Bill Act.
How to check if you’re enrolled in an eligible plan
For federal student loans, individuals can login to their account on StudentAid.gov and select “My Aid” or “View Details” to locate their loan breakdown.
There, borrowers can see each loan and its specific repayment plan to check if it one of the plans that provides loan forgiveness.
Will borrowers be taxed on cancelled debt?
Under Friday’s agreement, borrowers who become eligible for student loan forgiveness this year will not owe federal taxes on the relief, the Trump administration confirmed.
It also addressed the issue of a possible tax penalty to borrowers whose debt was forgiven next year due to delays.
Under current tax law, borrowers whose loans are discharged in 2026 and beyond would be taxed on the forgiven amount as if it were regular income — a major burden that could run up thousands of dollars.
With the new agreement, the Department of Education would recognize the original date a borrower qualifies to have their debt canceled under an IDR plan, rather than the date the government processes it.
This means borrowers who are eligible on or before December 31, 2025, will not be hit with a surprise tax bill due to processing delays brought on by the court battle or the government shutdown.
The union said the deal also adresses what it called a looming “tax bomb” stemming from a 2026 change in federal tax law that will treat canceled debt as income.
When will the student loan forgiveness go into effect?
The joint agreement is still awaiting court approval to become legally binding.
If the court signs off, the administration will be required to file six monthly reports on the status of its IDR and PSLF application and loan cancellation processing.
If approved, the agreement could bring relief to borrowers across the country who have been stuck in student loan payment programs for decades.
The timeline for court approval is not immediately clear.
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